This refers to ‘New class of foreign investors’, February 23, where the author convincingly argues that the new rules on foreign investment are open to abuse. Through a series of holding companies, the article argues, foreigners can bankroll up to 90 per cent, and more, of a company while, thanks to the new rules, appearing to hold only a small share of the company’s equity. This makes a mockery of foreign investment caps, and favours those companies who are confident of managing their partners well.
What makes the new rules especially ironical is that this was precisely the situation some years ago, and it was to clean up things that a new FDI policy was announced in 2006. So, it is puzzling to see a reversal in 2009. One reason, as the story speculates, could be on the need to bring in foreign investments in multi-brand retail, currently a prohibited area for foreign investments.
The flip side, which the author does not consider, is that sweeping policy changes are difficult to make in a country as fractious as India. Which is why, while a larger role for FDI is a good thing, the only way India can allow it is in this roundabout manner. So, there can be little doubt that the new policy is going to be abused, if the net result is more FDI, that can’t be a bad thing, can it?
Sarita Sharma, Noida
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