Foreign investment in joint ventures could exceed the FDI cap, if the way for determining it is changed by the Empowered Group of Ministers (EGoM), which will take up the proposal tomorrow.
The EGoM, headed by External Affairs Minister Pranab Mukherjee, will deliberate on the proposal of the Department of Industrial Policy and Promotion (DIPP), which seeks changes in the formula for calculation of the sectoral FDI ceilings.
"Foreign investment through an investing Indian company will not be considered FDI, in case the domestic partner firm is owned and controlled by Indian citizens," an official said explaining the proposal before the EGoM.
At present, the FDI ceiling in a company is worked out on the basis of direct stake of the foreign partner plus the pro-rata FDI element in the equity of the domestic partner.
For instance in a telecom joint venture 'A', the present guidelines would not allow a foreign partner to exceed, say, 60 per cent (despite the FDI cap of 74 per cent) in case the domestic partner's own equity structure has FDI which indirectly works out 14 per cent in the 'A' firm.
On the other hand, in case the domestic partner itself has a controlling foreign stake, its contributions would be added in the overall FDI ceiling.
However, the DIPP proposal has drawn flak from RSP Rajya Sabha Member Abani Roy, who has asked Mukherjee not to allow the "loophole" in the FDI guidelines. He has also written a letter to Prime Minister Manmohan Singh opposing the proposal.
FDI sectoral caps exist in telecom, insurance, cable-to -home television network, credit information services and print media.