To remove the ambiguity in the definition of foreign direct investment, a Government panel has said that any overseas investment of 10 per cent or more in a listed Indian company qualifies as FDI. There is no such minimum for an unlisted company.

The panel, headed by Arvind Mayaram, Secretary, Economic Affairs, has suggested that foreign investments below 10 per cent be treated as Foreign Portfolio Investment (FPI). FPI is the new combination of various portfolio investors, including Foreign Institutional Investors and Qualified Foreign Investors.

In its report, the panel said that an investor can hold an investment in a company either as FDI or FPI, but not both. The report, which was made public on Friday, states that ‘non-repatriable’ investments by Non-Resident Indians should be treated as domestic investment. The report, if accepted by the Government, will lead to legislative changes in the FDI rules. “Foreign investment of 10 per cent or more through eligible instruments made in an Indian listed company would be treated as FDI. All existing FDI below the threshold limits made under the FDI route will, however, continue to be treated as FDI,” it said.

FDI limits The Government has set various limits for FDI in different sectors. For example, for multi-brand retail, it is 51 per cent while for insurance, it is 26 per cent.

The panel suggested that investment below 10 per cent as FDI could be possible but only with a caveat that the foreign investment “stake is raised to 10 per cent or beyond within one year from the date of the first purchase”. It also said that the obligation to fulfil that condition would be on the company.

“If the stake is not raised to 10 per cent or above, then the investment will be treated as a portfolio investment,” the report said. It added that in case an existing FDI falls below 10 per cent, it can continue to be treated as FDI without any obligation to restore it to 10 per cent or more, as the original investment was an FDI. The panel said any investment by way of equity shares, compulsory convertible preference shares/debentures less than 10 per cent of the post-issue paid-up shares of a company will be treated as FPI.

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