New Delhi: Promising a simpler foreign investment regime, the government on Thursday introduced a concept of composite cap for all kinds of overseas inflows including through FDI, FII and NRI routes -- a move that may benefit retail companies and stock exchanges among others.
However, individual FDI and FII limits would continue in two key sectors, banking and defence, a government official said, even as some bankers claimed they might also benefit.
Among others, the decision, approved by the Union Cabinet here today, will benefit credit information firms and other market infrastructure institutions such as commodity and power exchanges, as they can bring in foreign investments either as FDI or FII up to the composite cap.
Stating that the concept of composite caps has been introduced for simplification of foreign investment norms, Finance Minister Arun Jaitley said, "From now onwards, all FIIs, NRIs and other foreign investments will be clubbed.
"It will be constituted as a composite cap," Jaitley told reporters after the Cabinet meeting chaired by Prime Minister Narendra Modi.
A government official said the move will provide options to both foreign and domestic investors, but added that no changes have been made with regard to specific foreign investment norms for the banking and defence sectors.
Foreign investment in banking and defence sectors will continue to have separate caps for FII and FDI, the official added.
The limit of portfolio investment in banking is capped at 49 percent while in defence it is 24 percent.
Some bankers, including Yes Bank chief Rana Kapoor said the move would help attract more capital flowing into the system and significantly ease the procedural investment decisions by foreign investors.
The official said all existing investments will hold good even if they are not exactly in compliance with the new norms.
In a post-Cabinet statement, the government also said investments made through Foreign Currency Convertible Bonds (FCCBs) and Depository Receipts (DRs) would not be treated as foreign investment unless the debt is converted into equity.
The proposal is aimed at simplification of FDI policy with a view to attracting foreign investments and also improving ease of doing business in India.
Under the existing policy, there are different caps for separate investment categories like FDI, FII and NRIs.
The proposal, mooted by the Commerce and Industry Ministry, would help remove ambiguity on application of sectoral caps, conditions and approval requirements in different sectors and simplify the foreign investment policy.
In 2014-15, investment by foreign institutional investors (FIIs) grew over seven times to USD 40.92 billion. FDI grew 27 percent to USD 30.93 billion in the previous fiscal.
Commerce and Industry Minister Nirmala Sitharaman said today's cabinet decision is an important step as it has removed ambiguities.
"...(now) the investor can be clear (in terms of) where he should get the money from and through which window, through which option he can get. So the ambiguity is removed.
"We are very clear that people even now can invoke the fungibility option which exists and move from one to another as they choose. So I think, it (the decision) gives a great sense of clarity and with that industry can be sure how they want to have the investment basket planned," she said.
When asked which sectors are likely to be benefited from this move, the minister said: "We are off course talking about infrastructure, talking about telecom, we are talking about sectors where labour has a high potential.
"So we are open and sectoraly also we are increasing the caps. So it should eventually benefit the sectors where there is a great potential for immediate returns," she told a private news channel.
Commenting on the decision, HDFC Chairman Deepak Parekh said the Cabinet decision shows government's commitment to reforms.
"It is furthering the process of reform, it is simplification, it is doing away with segregating of FDI, FII. It was long standing request by industry, it show government's commitment to reform, government commitment to continue to attract more funds from abroad and fulfilling its (government's) thrust of ease of doing business," he said.
The Commerce and Industry Ministry said in a statement that any existing foreign investment already made in accordance with the policy in existence would not require any modification to conform to these amendments.
The onus of compliance of the provisions will be on the investee company and not on investors, it said.
"The Cabinet in its meeting today approved the proposal of the DIPP to review the extant FDI policy on various sectors... by introducing composite caps so that uniformity and simplicity are brought in across the sectors in FDI policy for attracting foreign investments," it said.
The sectors which are already on a 100 percent automatic route would not be affected, it added.
Consultancy firm Deloitte said that the government's decision has the potential to speed up foreign exchange flows in India.
Citing an example, it said that as per the FDI policy in Print media, "FDI up to 26 percent is permitted with government approval. After the change, portfolio investment up to 49 percent is permitted without government approval if there is no change in control of resident Indian citizen".
