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Foreign Direct Investment in India

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Single Policy Platform For FDI

Union Commerce and Industry Minister Anand “There are many issues related with FDI policies
Sharma on March 31, 2010 released the final docu- that are currently under discussion in the govern-
ment of FDI Policy Framework that would now ment,” he said after releasing a compendium. LLP,
comprise the single document on FDI policy and the fast emerging form of business structure, is a
mark the inception of a whole new chapter on FDI hybrid of companies and partnership firms, which
policy. allows unlimited number of partners in an entity
but their liability is restricted to the extent of the
Mr. Sharma said the current exercise had been ini- stake held by them.
tiated with the aim of integration of all prior regu-
lations on FDI, contained in Foreign Exchange
Management Act (FEMA), RBI circulars, and vari-
FDI Inflows Touch
ous Press Notes into one consolidated document, US $ 1.72 Billion During
so as to reflect the current regulatory framework.
Having a single policy platform would also ease February 2010
the regulatory burden for Government. The inten-
tion of this exercise is not to make changes in the The Minister said that such consolidation would
extant guidelines, but to deal with them compre- ensure all information on FDI policy is available at
hensively. one place, which is expected to lead to: simplifica-
tion of the policy; greater clarity of understanding
Limit in LLP firms of foreign investment rules among foreign inves-
tors and sectoral regulators, as also predictability
of policy. “Having a single policy platform would
The government said it was considering allowing
also ease the regulatory burden for Government.
FDI in limited liability partnership (LLP) firms and
Updation of this document will be carried out af-
also to clearly define whether shares and bonds
ter every 6 months. This consolidated Press Note
issued to overseas investors could be treated as for-
will be superseded by a Press Note to be issued on
eign direct investment.
September 30, 2010, ensure that the framework
document on FDI policy is kept updated”, Shri
The government may also do away with Schedule
Sharma said.
IV of the FEMA that deals with sale and purchase
of shares and debentures by NRIs and overseas
corporate bodies on non-repatriable basis, Mr.
Sharma said.
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Earlier, the draft document was released on 24 terpart government organizations and other stake-
December, 2009 and was open for comments until holders, that there is a need for further simplifica-
the 31st of January, 2010. The response to the draft tion and consolidation of the FDI policy frame-
document has been excellent. Comments from 60 work, so as to make it more comprehensible to all
stakeholder organizations (including various Gov- investors and stakeholders. The Prime Minister,
ernment Departments, Reserve Bank of India, Law in his remarks at the World Economic Forum in
Firms, consultancy firms, Chambers of Commerce December, 2008, had also announced that, “Our
and private companies) have been received. All policy will be guided by the desire to make India
comments, received until date, have been consid- even more attractive for Foreign Direct Invest-
ered, before preparation of the final document. ment. We are particularly keen to rationalize and
Even after receiving the responses, we held an- simplify procedures so as to create an investor
other round of discussions on the document with friendly environment”. The present exercise was a
a number of consultancy firms that had offered step in the above direction.
comments on the draft, as also with the Reserve
Bank of India and the Department of Economic
FDI Inflows
There are a number of issues related to FDI policy FDI equity inflows for the month of February, 2010
that are currently under discussion in the Govern- have been US $ 1.72 billion, which represents an
ment, such as foreign investment in Limited Li- increase of 15%, in US $ terms, over the inflows
ability Partnerships (LLPs), policy on issuance of received in February 2009 (which were of the or-
partly paid shares/warrants, rescinding Schedule der of US $ 1.49 billion). FDI equity inflows for
IV of FEMA, clarifications on issues related to Press current the financial year (i.e. April, 2009 to Feb-
Notes 2, 3 & 4 of 2009 and on Press Note 2 of 2005, ruary, 2010) have been around US $ 24.68 billion.
as also certain definitional issues etc. When a de- These are comparable to the FDI equity inflows
cision on these is taken, the Government decision for the comparable period of the previous year,
would be announced and thereafter incorporated which were around US $ 25.39 billion.
into the Consolidated Press Note subsequently.
FDI inflows for almost all months in the current
Foreign Direct Investment into India is a capital financial year, from June onwards (excepting Sep-
account transaction under the Foreign Exchange tember, 2009 and January, 2010) have shown an
Management Act (FEMA), 1999. The Government increasing trend over the FDI inflows of the same
of India and the Reserve Bank of India (RBI) regu- months in the previous financial year (2008-09).
late such transactions. The Government comes up The pace of inflows, therefore, is stable.
with new regulations or amends/changes the ex-
isting ones, keeping in view the requirements that Accordingly, it is likely that the total inflows in
may exist at a particular point in time. Various as- the current financial year (2009-10) are compa-
pects of FDI policy are, accordingly, pronounced/ rable to the total inflows received during the last
notified through Press Notes issued by DIPP, RBI financial year (2008-09). This is despite the fact
circulars, Acts and changes in regulations. DIPP that the UNCTAD World Investment Report,
itself has issued about 177 Press Notes since 1991, 2009, had noted a fall of global FDI inflows, from a
covering various aspects of FDI policy, including historic high of 1.979 billion in 2007 to 1.697 bil-
cross border investment, policy liberalisation, lion in 2008, a decline of 14%. UNCTAD had sub-
policy rationalization and foreign technology col- sequently predicted a fall in global FDI investment
laborations, Industrial Policy etc. flows by 30%, from US $ 1.7 trillion in 2008 to US
$ 1.2 trillion in 2009.
As far as FDI policy is concerned, it had been felt,
through interaction with various investors, coun-
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It is relevant to note that the Organisation for Eco-

nomic Cooperation and Development (OECD), in
its latest report on investment, released in March,
2010, has noted a significant stagnation in the glo-
bal investment activity. It has noted that: The
average monthly Merger &Acquisition (M&A) ac-
tivity in the past 12 months was just under US $
50 billion. The last time monthly M&A activity
fell below US$50 billion was in April 2006. Year-
on-year, global M&A activity is now at its lowest
level since the beginning of the global economic
crisis, at around 35% of the levels reached two years
ago (March, 2007 through February, 2008).