Tuesday, February 24, 2009

Indirect FDI: More Changes on the Anvil

In order to address the concern that Press Notes 2 and 3 of 2005 (discussed here) will allow foreign investors to take indirect stakes in sectors where foreign investment is otherwise prohibited (e.g. multi-brand retail trading), it is reported in the Economic Times that the Government is proposing to issue another Press Note that clarifies this issue. The concern arises because, under these Press Notes, investment by an Indian company (that is owned and controlled by an Indians) in one of these sectors will be treated as domestic investment, although there may be foreign investment in that holding company up to 49%. The Economic Times reports that “sectors where foreign investment is prohibited, such as multi-brand retail, agriculture, lottery and atomic energy, would be kept out of the reach of even indirect foreign investment.” It appears that we will have to await yet another Press Note on this issue.

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