The Finance Ministry is working on a mechanism that would allow certain foreign portfolio investors (FPIs) the flexibility to seamlessly move into FDI category, if they so wish.

This facility is likely to be extended to those FPIs who are keen to own more than 10 per cent in a listed entity but are unable to do so given the current 10 per cent ownership cap in this category. Currently, FPIs can only own below 10 per cent in a listed company. 

“Any FPI that is desirous of increasing its shareholding beyond 10 per cent is now required to come out of FPI category, and separately come via FDI route. This is cumbersome for them as the process creates lot of friction. We want to remove the friction and help them port to FDI category,” official sources said.

This will also help bolster foreign investment flows into India. 

Simplifying norms surrounding FDI

The proposed mechanism is likely to be part of slew of measures that Government intends to take to simplify the norms surrounding FDI and overseas investments in a bid to boost capital inflows from foreign shores.

India on an average is getting FDI inflows of $70 billion a year and the government is keen to enhance the quantum to higher level.

Finance and Corporate Affairs Minister Nirmala Sitharaman had in her recent budget speech on July 23 said that the rules and regulations for foreign direct investment and overseas investments will be simplified to facilitate foreign direct investments, nudge prioritisation, and promote opportunities for using Indian Rupee as a currency for overseas investments.

Capital in Indian rupees.

To encourage use of Indian rupee, the Finance Ministry is toying with an idea of allowing foreign investors from specific countries to raise capital in Indian rupees. This money mobilised in India could be invested by foreign investors in their countries provided India has strategic interests with them. 

For instance, resident foreign investor from Sri Lanka can raise money in Indian rupees in India for being invested in Sri Lanka.

Finance Ministry is looking to allow such a facility on a country-to-country basis and not across the board, official sources said.

However, any such move would required an amendment to the Foreign Exchange Management Act, it is learnt.

Finance Ministry had in early August amended FEMA rules to allow the issuance or transfer of Indian company equity instruments in exchange of equity instruments of foreign companies. This is expected to enable Corporate India to get into smoother mergers and acquisitions with international companies.

The Finance Ministry also this month clarified on the treatment of downstream investments made by entities owned by Overseas Citizens of India (OCI) on a non-repatriation basis.

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