The government is liberalising its foreign direct investment rule that repatriate its original investment before a three-year lock-in period from the day it completes its minimum capitalisation norm for the sector.
Despite reservations of the Department of Industrial Policy & Promotion (DIPP), the government has contended that this restriction can be done away with, if the investor offers acceptable reason for not making the investment.
The stance will encourage many foreign investors whose projects in India might get stuck due to hiccups like questions of environment and inability to acquire the requisite land in the earmarked area, lending them an exit route much before three years.
Under the FDI policy, companies in many sectors have to bring in a minimum amount of capital as a condition for clearance.
In a sector like township that permits 100 per cent FDI under the automatic route, foreign companies have to bring in $10 million in a 100 per cent subsidiary and $5 million in a joint venture as minimum capitalisation.
The three-year lock-in issue came for discussion in the case of Cyprus-based Barrods Services Ltd, which had signed an agreement and had bought 99.7 per cent equity in Copper Beech Infrastructure Pvt Ltd from the existing shareholders some years ago.
The Indian company was planning to start a 1,000-acre project for establishing a new township featuring educational infrastructure, including schools, universities and homecare, and had paid some advance for land acquisition in Ratnagiri district of Maharashtra.
However the project -- at Nate village of Rajapur tehsil -- became unviable as the governments of India and France signed an agreement to set up the world’s largest 9,000-Mw power project at Jaitapur in the same western state.
This November 2010 decision forced Copper Beech to abort the project and ask for repatriation of its FDI funds, as the educational project is located only 15 kilometres from Jaitapur. (It is not feasible to have such a project next to a nuclear plant.)
At this, Copper Beech had asked the Foreign Investment Promotion Board to liquidate the company.
It also sought repatriation of the funds back to Barrods or wanted the repatriation of the FDI by way of sale of shares which they had bought in the company. In that case, Barrods had to look for a new investor.
However, at a series of meetings by the FIPB on the issue in the last few weeks, DIPP had contended the proposal should be rejected, as it did not meet the minimum lock-in period of three years required for repatriation of original investment.
But overruling their contention, the board observed that while FDI was bought in this project through the automatic route, negative developments, too, have happened. Over those, the firm had no control; therefore, it has no choice but to abort the project.
It felt the applicant should be given permission to liquidate the firm and repatriate the money though prescribed banking channels.
