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Sunday 31 March 2013

Move to clear doubts on foreign investment

Move to clear doubts on foreign investment

Mayaram: Clarity call
New Delhi, March 29: A committee set up by the government will meet on Thursday to do away with the ambiguity regarding foreign direct investment (FDI) and foreign institutional investment (FII).
The four-member committee is headed by the department of economic affairs secretary Arvind Mayaram. The panel is expected to finalise its report within two-three months. However, it is not expected to look at sectoral caps.
Officials said, "It is just the start of the whole process. The discussion is expected to review the composition of FII and FDI in various sectors. The overall objective is to clarify the definition of the two types of investors without trying to disturb the sectoral investments."
Other members of the committee are the department of industrial policy and promotion secretary Saurabh Chandra, an RBI deputy governor and a wholetime member of Sebi.
"The question that arises is whether a 26 per cent cap includes FII and FDI. How do we determine the two and regulate people buying and selling shares of a particular company in the market," Mayaram had said.
Finance minister P. Chidambaram had flagged the issue in the budget and proposed following global norms for defining FII and FDI. This means if an investor has a stake of 10 per cent or less in a company, the investment will be treated as FII.
Chidambaram has only laid down a broad principle to distinguish between FII and FDI. Details regarding its implementation will be outlined by the panel.
As on Thursday, the FIIs have pumped in Rs 1.38 trillion this fiscal, the highest since 2009-10. However, the FDI inflow dropped 39 per cent to $19.10 billion.
There are multiple avenues for investment in the country — FDI, FII, foreign venture capital investment and qualified foreign investor regimes.
In a research note, Nishith M. Desai Associates said in the light of the overlap between the various regimes and regulators overseeing them, there had been indications that the regulatory framework might shift from a classification-based regime to one based on investment size.

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