The Mayaram committee on rationalising the definition of various foreign investment classes in India has, in its draft report, stated that the new class of foreign portfolio investment (FPI) can be allowed up to the limit of automatic foreign direct investment (FDI) on a sectoral basis.
The committee has also recommended that any sort of foreign investment into unlisted firms will be treated as FDI, irrespective of any threshold.
“Investment under FPI route shall be subject to a default aggregate cap of 24%. The default limit can be raised to the sectoral cap or the statutory cap, whichever is permissible under the automatic route, and this will be the ceiling for FPI investments,” said the draft report, a copy of which is reviewed by FE.
For example, in telecom, up to 49% FDI is allowed through the automatic route and up to 100% FDI is allowed through approval route. According to the panel's recommendations, the aggregate FPI limit in telecom companies can also be up to 49%. It would be the company's prerogative as to how much of the 49% limit is FDI and how much is FPI. The individual FPI limit is to be capped at 10%, the report stated.
FPI is a new proposed investor class to be formed by merging existing foreign institutional investors (FIIs), sub accounts and qualified foreign investors (QFI). This was recommended by a panel led by former cabinet secretary KM Chandrasekhar last year.
There is currently no clarity on governing foreign investment in unlisted companies even though the government recently allowed these companies to list abroad without listing in India. “This (the move to treat any foreign investment in unlisted companies as FDI) is logical. There cannot be any portfolio investment in an unlisted company as the shares cannot be traded on the open market. If implemented, this will provide uniformity for investments in unlisted companies,” Akash Gupt, executive director at PwC, told FE.
The draft report also stated that the issue of foreign venture capital investors (FVCI) putting money into start ups in India needed to be looked at afresh. At present, there is ambiguity regarding this investor class. The RBI allows FVCIs in only 10 sectors. This may be increased to 13 sectors. However, there is no regulation either by Sebi or Fema that allows this kind of restriction.
“A separate team of Sebi, RBI and DEA (department of economic affairs) may be asked to look