The Department of Industrial Policy and Promotion (DIPP) has issued the new Consolidated FDI Policy Circular 1 of 2012 that is effective from today. An accompanying press release lists the key changes.
Some of the key changes relate to sectoral issues:
- relaxation for foreign investment in commodity exchanges whereby FII investment may be brought in through the automatic route; and
- clarification regarding the scope of ‘leasing’ for investment in non-banking finance companies (NBFCs).
Others relate to the imposition of additional restrictions on foreign direct investment (FDI):
- unavailability of share issuance option for purchase of second hand machinery from foreign suppliers; and
- the need to make prior intimation to the Reserve Bank of India (RBI) while increasing the limit of 24% foreign institutional investments (FIIs) in a single company.
The remaining changes formalize previous announcements that were already made by the Government:
- investments by foreign venture capital investors (FVCI) through private arrangements and purchase on stock exchange (discussed here);
- investments by qualified financial investors (QFI) (discussed here);
- liberalization of policy on transfer of shares in the financial services sector; and
- changes to sectoral policy in pharmaceuticals and single-brand retail trading.
In terms the periodicity of changes to the FDI policy, a decision has been taken to review the policy annually rather than to follow the current practice of bi-annual changes. In the interim, changes will be effected by way of press notes.Although these are only the highlights of the policy, other issues might likely arise based on a detailed reading of the new policy, especially on matters of interpretation.