Government sets up committee for rationalising of FDI and FII
23/06/2014 14:34
The Government of India had constituted a committee for rationalising the definition of FDI and FII as per the announcement of the then Union Finance Minister during the Budget Speech 2013-14, according to official statement released by Ministry of Finance. “In order to remove the ambiguity that prevails on what is Foreign Direct Investment (FDI) and what is Foreign Institutional Investment (FII), I propose to follow the international practice and lay down a broad principle that, where an investor has a stake of 10 percent or less in a company, it will be treated as FII and, where an investor has a stake of more than 10 percent, it will be treated as FDI. A committee will be constituted to examine the application of the principle and to work out the details expeditiously.” The Committee has now submitted its report which has been accepted by the Government. The core recommendation of the committee is that it should be the endeavour to simplify the classification of foreign investment and enable basically two classes of foreign investors in the long run viz. Portfolio Investors and FDI Investors, and at best carve outs therein for NRIs, in view of their special status. The Committee has recommended the merger of the FII and Qualified Foreign Investors (QFI) regimes under the new “Foreign Portfolio Investors” (FPI) regime, and this has been notified by SEBI and RBI in their respective regulations. The FPI regime will be subject to the prevailing SEBI (SAST) Regulations to prevent persons acting in concert. There is no change proposed in the monitoring mechanism. However, it has been proposed in addition, that the onus of adherence to the aggregate FPI limit will also be cast on the Investee Company, which can be asked to get the compliance to the foreign investment limit verified by the Statutory Auditor on a half-yearly basis.
23/06/2014 14:34
The Government of India had constituted a committee for rationalising the definition of FDI and FII as per the announcement of the then Union Finance Minister during the Budget Speech 2013-14, according to official statement released by Ministry of Finance. “In order to remove the ambiguity that prevails on what is Foreign Direct Investment (FDI) and what is Foreign Institutional Investment (FII), I propose to follow the international practice and lay down a broad principle that, where an investor has a stake of 10 percent or less in a company, it will be treated as FII and, where an investor has a stake of more than 10 percent, it will be treated as FDI. A committee will be constituted to examine the application of the principle and to work out the details expeditiously.” The Committee has now submitted its report which has been accepted by the Government. The core recommendation of the committee is that it should be the endeavour to simplify the classification of foreign investment and enable basically two classes of foreign investors in the long run viz. Portfolio Investors and FDI Investors, and at best carve outs therein for NRIs, in view of their special status. The Committee has recommended the merger of the FII and Qualified Foreign Investors (QFI) regimes under the new “Foreign Portfolio Investors” (FPI) regime, and this has been notified by SEBI and RBI in their respective regulations. The FPI regime will be subject to the prevailing SEBI (SAST) Regulations to prevent persons acting in concert. There is no change proposed in the monitoring mechanism. However, it has been proposed in addition, that the onus of adherence to the aggregate FPI limit will also be cast on the Investee Company, which can be asked to get the compliance to the foreign investment limit verified by the Statutory Auditor on a half-yearly basis.
