Non-resident Indian (NRI) investors and foreign venture capital investors (FVCIs) may not be counted as foreign institutional investors (FIIs) in listed firms. The proposal is being mooted by a high-level panel set up to rationalise the definition of FII and foreign direct investments (FDI).
Instead, a new investor class of Foreign Portfolio Investor has been suggested to differentiate between long-term and short-term investors that would include only FII and qualified foreign investors (QFI). This follows recommendations of the KM Chandrasekhar committee.
The finance ministry is understood to be of the view that this category should be retained but its aggregate investment cap should be kept at 10 per cent instead of the Chandrasekhar panel’s suggestion of 24 per cent.
“All holdings of less than 10 per cent in listed companies will be considered as FII while those above the cap would be kept as FDI. But NRI investors and FVCIs will not be part of the FII holdings,” said a senior government official.
NRI and FVCI investments should instead be considered as FDI. The panel led by department of economic affairs secretary Arvind Mayaram and Reserve Bank of
India deputy governor HR Khan as its member, is understood to have finalised the draft report.
“The report is likely to be submitted to finance minister P Chidambaram by next month,” said the official.
However, certain operational issues still need to be addressed. The committee is working on how to categorise FDI holding which falls below the proposed 10 per cent cap still need to be worked out.
The four member panel, which also includes representatives from the Securities and Exchange Board of India (Sebi) and an official from the department of industrial policy and promotion, was set up following a proposal in the Budget 2013-14 to distinguish between foreign direct investors and foreign institutional investors.