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Review of FDI Policy

Finsec Law Advisors

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The Government released a press note on November 10, 2015 outlining significant reforms in the Consolidated FDI Policy Circular of 2015 and the DIPP issued another press note on November 24, 2015 to operationalize such changes in the FDI Policy with immediate effect. In private sector banking, a composite cap has been implemented by removing the sub-limits for FDI and FII, thereby allowing FIIs/FPIs/QFIs to invest upto the sectoral limit of 74%, provided there is no change of control and management of the investee company. The existing foreign portfolio limit of 49% was hindering fund raising plans of private sector banks. The new rule will provide considerable flexibility and help small finance banks and payment banks to tap the overseas market.

Some of the other significant reforms brought in by the press note are as follows:

  • FDI upto 100% has been allowed in limited liability partnerships, which would provide considerable ease in establishing or investing in LLPs.
  • FIPB approval is not required for investment in automatic route by way of swap of shares.
  • Investment by companies/ trusts/ partnerships owned and controlled by NRIs on non-repatriation basis will now be treated as domestic investment.
  • The monetary limit for FIPB to approve FDI proposals has been raised from Rs 3,000 crore (Rs. 30 billion) to Rs 5,000 crore (Rs. 50 billion), for facilitating faster approvals.
  • Other broad-based reforms pertaining to fifteen sectors, including news broadcasting, plantation, civil aviation, defence, construction development, retail have been made.

The reforms seek to simplify, smoothen and rationalize the FDI process with a view to boost the ease of doing business in India. Liberalizing the FDI regime wherein a greater number of activities are under the automatic route will send a positive signal to global investors, accelerate economic growth and supplement domestic capital.