The Cabinet on 16th July 2015 cleared the composite cap for foreign investments in domestic companies, doing away with sub-limits for foreign direct investment (FDI) and foreign portfolio investment (FPI). There will be only one composite Limit for Foreign Direct Investment based on the extant FDI policy caps of 49% or 74%. These changes will not be applicable to the banking and defence sectors.
The introduction of composite foreign direct investment (FDI) caps is likely to impact commodity exchanges, credit information companies, power exchanges and infrastructure firms in the securities market such as stock exchanges. They will now have the flexibility to have overseas equity in any form up to the sectoral cap. These sectors currently have sub-limits within an overall cap.
The main reason behind the composite caps was to bring clarity in all types of foreign money coming into the country and check “misuse of the FDI policy”, thereby promoting ease of doing business. As a result, the composite caps would do away with the sub-limits forever, while only the sector cap would be maintained, a senior official in the department of industrial policy & promotion told Business Standard.
The composite cap system will not impact FDI norms in print media, aviation, multi- and single-brand retail trading and telecom services, among others. Sectors that had the stipulated condition of going through the government route at present would remain as they were, the official stated.
For instance, 49 per cent foreign investment can come in through the automatic route in single-brand retail, while permission of the Foreign Investment Promotion Board (FIPB) or the Cabinet Committee on Economic Affairs will be needed beyond that.