Even as the finance ministry plans to draw a distinction between foreign direct investment (FDI) and foreign institutional investor (FII), the two high-level committees that examined the issue have differed on certain aspects of classifying foreign investments. Sources said the KM Chandrashekhar committee proposed that foreign venture capital investor (FVCI) be kept as a separate class, distinct from foreign portfolio investor (FPI), while the panel led by DEA secretary Arvind Mayaram opines that the very purpose of redefining FDI/FII is to merge FII, sub-accounts, QFIs and FVCI into a new investor class called FPI.
The purpose of the Budget announcement that FDI and FII be clearly defined (investments up to 10% in a firm as FII and above it, FDI) was primarily to avoid fine categorisations and divide foreign investors into two broad groups. It is said that the FPI, as being proposed now, would more or less encompass all portfolio investment classes and supplant the term FII used in the Budget speech.
An official said that in a detailed note, the Reserve bank of India (RBI) has also endorsed the finance ministry’s view that FVCI could be merged into the broad portfolio investment class. However, the RBI strongly feels that a non-resident Indian (NRI) investor class with the current investment limit of 10% should be maintained.
An FVCI is a foreign investor in the form of a corporate body or trust that wants to investment in a venture capital company in India. The investor has to be registered with Sebi, under the foreign venture capital investor regulations, 2000.
The Chandrashekhar committee felt the FVCI route has benefits like non-applicability of pricing norms for acquisition and disposition of investment, giving them the flexibility to undertake transaction at a price agreed by the buyer and the seller. Also, there is a relaxation for FVCIs from post-IPO lock-in requirement. Therefore, the panel believes, they need to be a separate class. These benefits given to FVCIs are helpful in promoting VC investment.
To rationalise investment classes, the UK Sinha panel in 2009 had also recommended that the qualified foreign investor (QFI) category should include all permitted investment by FIIs, FVCIs and NRIs. However, QFI was later added as another investor class along with the other three.
The Chandrashekhar panel has also suggested allowing FVCI investment in more sectors with a negative list of areas where they cannot invest. Currently, FVCI can invest in nine sectors.