| Date: |
31-01-2013 |
| Subject: |
Budget 2013: Government to give facelift to foreign investment regime |
NEW DELHI: The government plans to give a big facelift to foreign investment regime this Budget by moving to the model followed in many nations wherein investment in a company above a threshold level is termed strategic and below that is treated as financial investment.
Under the policy under consideration, any foreign investment in a company in excess of 10% of its equity should be considered strategic investment or foreign direct investment (FDI) and less than that as portfolio investment.
This will cover all modes of foreign investment, private equity, foreign institutional investment and FDI.
"There is a need to remove overlaps and simplify the overall investment regime for foreigners," a senior government official told ET.
Finance minister P Chidambaram, who went on a four-nation tour earlier this week to woo foreign investors, is particularly keen that the budget sends out strong signals to foreign investors, hoping to attract capital to meet India's yawning current account deficit that rose to a record high of 5.4% of GDP in July-September quarter.
Foreign direct inflows are down 33% in April-November from a year ago to $21.7 billion, though FII flows have been robust at $31 billion in 2012 and over $4 billion in January.
Experts say multiple windows and different regulations complicate the framework."There is a need for realignment in the current FDI structure with the portfolio investment scheme especially as some sectors have a composite cap and others where such a cap is not prescribed," said Akash Gupt, executive director, PwC.
The Organisation for Economic Co-operation and Development prescribes such a simple rule and a number of India's emerging market peer such as Brazil, South Korea and South Africa also follow this rule.
The discussions are on and the forthcoming budget could unveil contours of the new regime, the official added.
The Reserve Bank of India, which on Tuesday raised alarm over the rising current account deficit, in its monetary policy review had also written to the finance ministry in August about adopting a simplified regime for foreign investors to attract stable flows.
A working group headed by Sebi chairman UK Sinha had in 2010 also suggested creating a single window framework for all Qualified Financial Investors who wanted to invest through the portfolio route.
It had suggested adopting the OECD model to treat any foreign investment above 10% as FDI and below 10% as QFI flows as there was no reason for policy to prefer one over the other.
The recommendations of the group will form the basis of the blueprint expected to be outlined in the budget.
Market regulator Sebi has also set up a committee headed by former cabinet secretary K M Chandrashekhar to look into multiple routes for foreign investment such as foreign institutional investors, foreign venture capital investors, qualified foreign investors and non-resident Indian and suggest a simpler policy regime.
Source : economictimes.indiatimes.com
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