India relaxes ownership norms on foreign direct investment

February 11th, 2009 - 3:46 pm ICT by IANS  

New Delhi, Feb 11 (IANS) India’s cabinet Wednesday relaxed norms governing what constitutes foreign equity in companies that operate in sectors that have a cap on overseas investment in a bid to rationalise procedures.Announcing the cabinet decision, based on the advice of an empowered group of ministers, Home Minister P. Chidambaram, as cabinet spokesman, said foreign investment in a domestic holding company would be considered foreign equity.

But that domestic holding company’s foreign equity component in another company will not be taken into account while calculating the sector-specific foreign equity limit, if the holding firm is majority-owned and controlled by Indians, he explained.

“The objective is to make the norms simple and transparent,” Chidambaram added, while briefing reporters on decisions taken by the cabinet meeting, presided over by External Affairs Minister Pranab Mukherjee who also headed the ministerial group.

The home minister said that while the definition of “owned” and “controlled” would be clearly defined, he also said that government permission would be required for foreign investment in areas like defence and air transport.

“But these rules will not apply were there are no sectoral caps - where 100 percent foreign equity is allowed.”

As of now, the ceiling on foreign investment in a company was being worked out on the basis of both the direct stake of the foreign partner plus the pro-rata foreign direct investment in the equity of the domestic partner.

But the ministry of commerce and industry, as also several stakeholders, had wanted these norms recast since it was causing complications and being subject to misuse in sectors such as telecommunications and media.

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