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FDI Policy Changes For A Difficult Economy

FDI policy changes announced by the government have caused a lot of brouhaha in the telecom sector. A press release issued by the Cabinet Committee on Economic Affairs on Wednesday features amendments to the government’s policies on foreign direct investment in Indian companies in telecom, media, aviation, banking, defence and insurance sectors.

The changes in the FDI policy have been made following recommendations by a group of ministers headed by External Affairs Minister Pranab Mukherjee.

The release says that in an attempt to create “investor friendly, credible and predictable regulations that would facilitate greater foreign capital inflows and send a positive signal in the present difficult economic scenario,” the government has modified guidelines for calculation of foreign investment and the transfer of ownership or control of Indian companies to non-resident entities.

FDI In Telecom Now 98%?

The amendment says indirect investment is no longer be part of sectoral ceilings, so could foreign investors increase their stake through the indirect mode in Indian telecom companies?

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Currently foreign direct investment in Indian telcos is restricted to 74%. Media reports, such as this one from TelecomTiger, declare that the announcement really means the FDI cap in Indian telcos is no longer 74 percent but a whopping 98 percent.

Controls

Amendments in the policy also introduce a new concept of controls and ownership in the sector. An Indian company that is backed by foreign investments but ultimately controlled and owned by Indians can invest without being under the FDI cap.

No Clarity

After announcing such sweeping changes, the government has not offered any details on the new FDI cap. So while the media surmises, readers are advised to wait for further clarification by the government.

P Chidambaram’s website has no updates on the announcement. According to Mint, the change in norms had been opposed by the ministries of finance, telecom and information and broadcasting. The guidelines for transfer of ownership from a resident Indian citizen to non-resident Indian entities are being revised too.

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Government May Unveil Details in 10 Days

Business Standard has quoted its government sources as saying we might expect two press notes on FDI norms to be released in the next ten days.

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