New Delhi: In a major policy reform, the government on Thursday announced flexibility for Indian companies to raise overseas capital but plugged the loopholes for back door FDI entry breaching sectoral caps.
Under the new norms, Indian companies have been allowed to issue equity against import of capital goods and liberalize conditions for seeking foreign investment for production and development of agriculture seeds.
The facility of conversion of capital goods import into equity was earlier available for companies raising external commercial borrowings (ECBs).
The government, as per the third Consolidated FDI Policy Circular -- a ready reckoner on foreign investment related regulations -- also removed the restrictive condition of obtaining prior approval of Indian companies for making investments in the ‘same field’.
“It is expected that this measure will promote the competitiveness of India as an investment destination and be instrumental in attracting higher levels of FDI and technology inflows into the country,” it said.
In a major initiative to plug loopholes, the government has classified companies into two categories – ‘companies owned or controlled by foreign investors’ and ‘companies owned and controlled by Indian investors’.
The government has done away with the earlier categorization of ‘investing companies’, ‘operating companies’ and ‘investing-cum-operating companies’.
The decision would have a bearing on the companies with majority foreign equity as they would now be classified as foreign companies.
The policy guidelines are revised every six months.
It further said that the companies would be free to prescribe a formula for transforming convertible instruments (like debentures, partly paid shares, preferential shares etc) into equity in accordance with the guidelines of FEMA and Sebi.
Earlier, they were required to specify upfront the price of convertible instruments.
The decision “would help the recipient companies in obtaining a better valuation based upon their performance,” it added.
These steps would help the country to attract more and more FDI. During the 11-month April-February period this fiscal, FDI inflows into India declined by 25% to $18.3 billion.