Sun. Jan 24th, 2021

Composite Caps for Foreign Investment Formalized

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We had earlier discussed the Union Cabinet’s decision to create composite caps for foreign investment under various categories. That decision has now been formalized in the form of Press Note No. 8 of 2015 issued by the Department of Industrial Policy & Promotion, Government of India (“DIPP”).In the previous post, we had highlighted two outstanding issues from the Cabinet decision that were left somewhat ambiguous. They have now been clarified in the Press Note.The first issue relates to whether composite caps apply to the banking and defence sectors. Although the press release of the Cabinet decision seemed to include all sectors within the composite caps, subsequent press reports based on ministerial announcements suggested that the banking and defence sectors were to be kept outside the purview of the composite caps. That has now been confirmed in the Press Note. In the banking sector (in item, foreign investment is allowed up to 74%, but foreign portfolio investment is allowed only up to 49%. In the defence sector (in item, foreign investment is allowed up to 49%, but portfolio investment only up to 24%).The second issue arose because the Cabinet decision specified that “portfolio investment, upto aggregate foreign investment level of 49%, will not be subject to either government approval or compliance of sectoral conditions, as the case may be” so long as ownership and/or control is not transferred to non-resident entities. This would have an impact on sectors that are currently eligible for foreign investment of less than 49%, that too under the Government route. Examples of this include terrestrial broadcasting (FM radio), news and current affairs TV channels and print media (news and current affairs) where foreign investment is permitted up to 26% under the Government route. The implications of the present change on these sectors were somewhat unclear. Now, Press Note clarifies that portfolio investment under the automatic route is available “upto aggregate foreign investment level of 49% or sectoral/statutory cap, whichever is lower”. Hence, in case of sectors where overall foreign investment is allowed up to less than 49%, that lower limit will continue to apply.

Source: Corporate

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