In a move that could have implications for the Rs 2,058-crore Jet-Etihad deal, the Cabinet is expected to consider a new definition of ‘control’ in the foreign direct investment policy on August 1.
“The new definition of ‘control’ aims to provide better mechanism for calculating direct and indirect investment in a company,” a senior Government official told Business Line .
Once approved, this will replace the existing definition given in the Consolidated FDI Policy. The new definition will be applicable with prospective effect, which is the date of notification.
The new definition will include the right to appoint majority of directors. It will also include “control in the management or policy decisions by virtue of shareholding or management right or shareholder agreement or voting agreement.”
The existing clause in the FDI circular says, “A company is considered as ‘controlled’ by resident Indian citizens if the resident Indian citizens and Indian companies, which are owned and controlled by resident Indian citizens, have the power to appoint majority of its directors in that company.”
The Cabinet Committee on Economic Affairs (CCEA) may review the Jet-Ethihad deal on the basis of the new definition when it comes up for consideration before it.
multi-brand retail
The CCEA may also look into revising norms related to sourcing from small industries and investment in back-end by multi-brand retailers. These are being considered after concerns expressed by foreign investors.
Talking about sourcing norms, the official said that there will be no change in 30 per cent sourcing limit from small industries.
However, under the proposed sourcing norms, small industries will be defined as those having a total investment in plant and machinery not exceeding $2 million. At present, this limit stands at $1 million.
The proposed definition will also include co-operative societies.
Small industry status
At the same time, the small industry status would be decided upon only at the time of entering into agreement. “They will continue to remain small industries even if the capital investment is more than $2 million during the course of the relationship with foreign retailers,” the official added.
However, this status will be valid for only three years after the breach of the $2-million investment limit.
The official also mentioned that the change in provision for back-end investments is likely to specify that such investments will be a one time affair.
The existing provision says that at least half of total FDI brought in needs to be invested in back-end infrastructure within three years of the first tranche of investment.