New Delhi: The government has taken a cautious approach towards allowing FDI in the hitherto untried LLP format of business, mostly preferred by professionals, experts said on Tuesday.
The government has allowed FDI in Limited Liability Partnership (LLPs) only in sectors where 100% FDI is allowed under the automatic route.
But still government approval is must for FDI in LLPs even in sectors where 100% overseas investment is allowed.
Experts have, however, welcomed this cautious approach, while looking forward to a gradual liberalization vis-a-vis FDI.
LLP (Limited Liability Partnership), a new business structure in India, is a hybrid between a partnership company and body corporate.
“Initially, the government wants to see how they (LLPs) are bringing in the money (FDI), how they are utilizing the funds. As these are not structured like companies, the government is taking a cautious approach,” KPMG executive director Krishan Malhotra said.
Similar views were expressed by senior partner of law firm Titus & Co, Diljit Titus who said the FDI guidelines would be liberalized further in this regard with the experience gained.
“One can understand the cautious approach of the government of not completely allowing FDI in LLPs. However, I hope the government will further open LLPs to foreign investors. Globally, the LLPs are the preferred form of doing business by professionals”, Titus said.
Malhotra said that initially the RBI would also like to keep a tab on deals involving FDI in LLPs to ensure that there are no violations of FEMA rule.
The Foreign Exchange Management Act regulates flow of foreign capital. Echoing the view, PwC said that over a period of time, the government may further liberalize FDI regime for LLPs.