New Delhi: Shedding earlier reservations over some aspects of the controversial new FDI guidelines, the finance ministry now says it does not have any objection to new rules that changed the criteria for calculation of foreign ownership in a company and its downstream investment.
However, whether the new scenario will pave the way for Bharti-MTN deal to comply with sectoral caps is not yet clear.
“We are not opposed to Press Notes (2,3 and 4). Earlier, we may have some opposition to some aspects of these Notes. We are doing everything to implement these notes, approved by the Cabinet,” a key source said in the national capital.
He said the Foreign Investment Promotion Board (FIPB) has been approving cases, based on these notes.
When asked whether Bharti-MTN deal will require FIPB permission to go through or will it breach the sectoral cap as per the new norms, he said the board has not taken a call on it as the deal has not come to it.
The deal to create the world’s third largest telecom company with 200 million subscribers and over $20 billion of revenue is still in negotiating stage and is yet to fructify as it has to cross some hurdles, including dual listing of MTN on South African and Indian bourses with equal voting rights.
Earlier, the department of economic affairs in the finance ministry had objected to some aspects of the new foreign investment norms, saying they rendered sectoral FDI limits meaningless.
The Reserve Bank of India had also opposed the new press notes, saying the norms could encourage investors to set up companies in which non-resident entities hold 49% and skirt sectoral FDI limits.
The department of industrial policy and promotion (DIPP) under the commerce ministry issued these press notes outlining the revised FDI guidelines.
DIPP issued press notes 2 and 3, dealing with calculations of foreign investment in a company and investment in downstream entities. Since there were doubts regarding these issues, DIPP came out with Press Note 4.
These notes have replaced the conventional proportionate method of computing foreign indirect equity by the parameter of beneficial ownership and control of entities at each stage of investment.
As per press note 3, foreign investment will include all types of foreign investments -- foreign direct investment, investment by FIIs, NRIs, ADRs, GDRs and convertible preference shares. This was not the case earlier.
After these press notes, even if unrelated foreign investors in totality hold more than 50% in an Indian company, it will be treated as foreign investor.
As per press note two, FDI routed through an Indian company owned and controlled by resident Indians will not be taken into account while calculating sectoral limits.