Introduction of composite caps for simplification of FDI policy

The Department of Industrial Policy and promotion (“DIPP”) vide a Press Note dated 30th July, 2015 amended the extant Foreign Direct Investment Policy (“FDI”) by introducing composite caps for simplification of FDI policy to attract foreign investment. Highlights of the amendments are:

  1. The sectoral cap i.e., the maximum amount which can be invested by foreign investors in an entity, unless provided otherwise, is composite and includes all types of foreign investments (direct and indirect) regardless of whether the said investments have been made under Schedule 1 (FDI), 2 (FII), 2A (FPI), 3 (NRI), 6 (FVCI), 8 (QFI), 9 (LLPs) and 10 (DRs) of FEMA (Transfer or Issue of Security by Person Resident Outside India) Regulations.
  2. The aggregate FII/FPI/QFI investment, individually or in conjunction with other kinds of foreign investment, should not exceed the sectoral/statutory cap.
  3. Portfolio investment, up to aggregate foreign investment level of 49 % or sectoral/statutory cap, whichever is lower, will not be subject to either government approval or compliance of sectoral conditions, provided such investment does not result in transfer of ownership and/or control of Indian entities from resident Indian citizens to non-resident entities.
  4. Foreign Investment in sectors which are under Government approval route and where transfer of ownership and/or control of Indian entities from resident Indian citizens to non-resident entities will be subject to Government approval. However, such transfer of ownership and/or control of Indian entities which are operating in sectors under automatic route but with conditionalities will be subject to compliance of such conditionalities and no government approval will be required.
  5. The sectors which are already under100% automatic route and are without conditionalities would not be affected.
  6. It is specifically clarified that there are no sub-limits of portfolio investment and other kinds of foreign investments in commodity exchanges, credit information companies, infrastructure companies in the securities market and power exchanges.
  7. In Defence sector where sectoral cap of 49% is prescribed, portfolio investment by FPI/FIIs/NRIs/QFIs and investments by FVCIs together will continue to be restricted to 24% of the total equity of the investee/joint venture company.
  8. In Banking-Private sector, where sectoral cap is 74%, FII/FPI/QFI investment limits will continue to be within 49% of the total paid up capital of the company.
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