Finally after delay of a week or so,  DIPP has unveiled much awaited policy on Foreign Direct Investment on 10.04.2012. This policy supersedes all earlier policies, circular, press notes issued on FDI by DIPP. Until now, the FDI policy was issued after every six months but from now onwards it will be issued after every year.

Barring few changes, this policy is more of a compilation of circulars issued by Reserve Bank of India in last few months. The speculation on defining joint venture or liberalizing norms for aviations sector, liberalizing outsourcing requirement in case of single brand retail has remained a speculation itself, with none of the issues finding its ways into the policy document. The key features of new FDI policy are as follows:

A. General Changes
  • Prior Intimation to RBI for Increase in Threshold Limits by Foreign Institutional Investors (FIIs)
  • Investments by Foreign Venture Capital Investors (FVCIs)
  •  Investments by Qualified Financial Investors (QFIs)
  • Import of capital goods/machinery/equipment (including second-hand machinery)- conversion to equity
  • Transfer of shares where valuation norms are not met
  • Limit for providing undertaking for transfer of security by PRI to PROI as gift has been raised

B. Changes in Sectoral Caps

  • Policy on commodity exchange
  • Non-banking Finance Companies (NBFC) clarification on leasing
  • Changes in FDI policy in single-brand retail trading and pharmaceuticals sector
  • Foreign Investment in Pharmaceuticals Sector - Amendment to the Foreign Direct Investment Scheme
Our Comments

The much awaited policy has certainly failed to meet the expectation or cheer up the foreign investors though it has provided relief to them by not incorporating the provisions related to media news relating to defining joint venture, bring back restriction on put & call options, which has been doing the rounds in the recent month. Any such move will have been a another setback for foreign investors, who are still trying to come out of the recent changes proposed by the Union Budget 2012-13.
The policy failed to take any bold step or key reforms, which can be attributed to lack of political stability or poor show of UPA government in the recent poll results.

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