The move will also bring in transparency and clarity on the foreign investment policy.

Written by Shruti Srivastava | New Delhi | Updated: December 10, 2014 6:31 am

The department of industrial policy and promotion (DIPP) is giving final touch to the proposal of merging the limits of foreign direct and portfolio investments into, what is being called, a composite cap.

A senior official told The Indian Express that the work on having “composite caps across the sectors is almost finished. The Cabinet note on the same will soon be circulated for approval”.

The proposal is essentially a move towards giving companies more flexibility for deciding on the mix of foreign investment they want. Further, it will also bring in transparency and clarity on the foreign investment policy of the country at a time when the BJP-led government is trying hard to woo foreign investors to jump-start the economic revival.

“It is a matter of having clarity on the policy. Currently there is an anomaly as the principle is being applied in some select cases. The composite cap will bring in uniformity,” Akash Gupt, ED, PwC, said.

Overseas investments up to 49 per cent via automatic route will be allowed through foreign direct investment (FDI), foreign institutional investors (FIIs), foreign venture capital investment (FVCI), foreign portfolio investment (FPI), non-resident Indian investment, foreign currency convertible bonds (FCCB), fully and mandatorily convertible debentures or preference shares and depository receipts.

However, for FII investments above 24 per cent in sensitive sectors like defence, approval by the government would be needed, the official said.

The government has already allowed foreign investment, comprising FDI, FIIs, NRIs, FVCIs and qualified foreign investors (QFIs), up to 49 per cent in the defence sector and proposes to raise the same up to 49 per cent in the insurance sector too.

The draft report on Insurance Bill raising the cap from the current 26 per cent to 49 per cent has already been adopted by the Parliamentary select committee and is likely to be tabled in Parliament in the ongoing Winter session.

Opposition parties including the Congress and the Left have been against the proposal on the grounds that portfolio investment is “hot money, and very short-term in nature”. Senior leaders of the Opposition have argued that allowing such composite cap will always raise concern as this may leave the country any time without any actual addition to the country’s wealth.

Earlier during the year, a government panel headed by ex-economic affairs secretary Arvind Mayaram had suggested easing foreign investment rules and doing away with separate caps on FIIs and FDI to move towards a composite cap structure.

The committee had recommended 49 per cent foreign investment through the automatic route in all sectors except defence, insurance and media. It had pegged FPI limit at 24 per cent through automatic route.

First Published on: December 10, 20141:03 am