The government today said it is considering allowing FDI in limited liability partnership (LLP) firms and also to clearly define whether shares and bonds issued to overseas investors could be treated as foreign direct investment.
The government may also do away with Schedule IV of the Foreign Exchange Management Act (FEMA) that deals with sale and purchase of shares and debentures by NRIs and overseas corporate bodies on non-repatriable basis, Commerce and Industry Minister Anand Sharma said here today.
"There are many issues related with FDI policies that are currently under discussion in the government, such as foreign investment in LLPs...Rescinding Schedule IV of FEMA...," he said after releasing a compendium which integrates all 178 Press Notes since 1991 into a single document.
LLP, the fast emerging form of business structure, is a hybrid of companies and partnership firms, which allows unlimited number of partners in an entity but their liability is restricted to the extent of the stake held by them. Since it is a new form of ownership, the government is yet to form a policy guideline.
While the Department of Industrial Policy and Promotion (DIPP) has published a single document on all FDI rules, including those relating to FEMA and Reserve Bank guidelines, the document does not involve any policy changes.
"The intension of this exercise is not to make changes in the existing guidelines but to make them comprehensible to all investors and stakeholders over a single platform," Sharma said.
The single FDI document would be reviewed every six months. "This document will be updated every six month. This consolidated Press Note will be superseded by a Press Note to be issued on September 30, 2010," Sharma said.
Meanwhile, the DIPP in a statement today said the single policy platform would also ease the regulatory burden for government. After the DIPP issued some Press Notes last year defining an FDI entity, a lot of confusion arose about the treatment of the subsidiaries.
The government will also clarify on treatment of partly-paid shares and warrants which are issued to overseas investors, Sharma said, adding clarification to be brought out will have clear-cut definitions in this regard as well.
Global consulting firm PricewaterhouseCoopers executive director and leader regulatory services Akash Gupt said the FDI guidelines so far were fragmented into various Press Notes, regulations under FEMA and sectoral guidelines of the ministries concerned, many of which were not in harmony.
"The new initiative of the government is expected to bring clarity and remove the disharmony, thereby moving towards a more investor friendly environment," Gupt said.
Commenting on the single FDI document, Ficci President Rajan Mittal said: "This is really going to propel FDI flow into the country."
CII said the simplified document would help bringing more FDI particularly in the infrastructure sector. The consolidation of the FDI regulatory policy would go a long way in addressing the transparency and clarity of the country's foreign direct investment policy regime, CII Secretary General Chandrajit Banerjee said.
"This move would aid simplification and boost global investor’s confidence and also enhance predictability that would also neutralise any negative perceptions based on hearsay regarding our FDI regulatory policy environment," Banerjee said.
Ficci's Mittal in a statement said, "With the government taking steps to bring about procedural reforms, FDI flows would only rise as the global economic tide turns."
PHDCCI said the move would help foreign investors in better understanding the FDI guidelines and send positive signals. "The decision to update the document every six month is also a positive move," PHDCCI President Ashok Kajaria said.
Meanwhile, Sharma said FDI grew by 15.4 per cent to $1.72 billion in February compared $1.49 billion in the same month last year.
During the April-February period of this fiscal, the inflows declined to $24.68 billion, from $25.39 billion in the same period last year, under the impact of global financial crisis.
