Finance Ministry in a statement today said the government has accepted the report of the committee headed by Finance Secretary Arvind Mayaram.
It said an investor may be allowed to invest below 10 per cent and "this can be treated as FDI subject to the condition that the FDI stake is raised to 10 per cent or beyond within one year from the date of the first purchase".
If the stake is not raised to 10 per cent or above, then the investment can be treated as portfolio investment.
Among various recommendations, the panel has suggested that foreign investment in an unlisted company, irrespective of the threshold limit, may be treated as FDI.
Foreign direct investment is subject to sectoral caps.
FDI reflects a lasting interest and long-term relationship, while under portfolio investment the relationship between the investor and the company remains largely anonymous, the report said.
It further said that any investment by way of equity shares, compulsorily convertible preference shares/debentures less than 10 per cent should treated as Foreign Portfolio Investment (FPI).
FPI includes portfolio investors like foreign institutional investors (FIIs) and qualified foreign investors (QFIs).
Regarding NRI investors, it said special privileges are also available to them in terms of the Overseas Citizenship Act and the provision to make 'non-repatriable' investments.
"This position would remain and to reinforce the same, it may be further examined if non-repatriable investment by an NRI can be treated as 'domestic' as also an enabling mechanism to enable such investment to come via corporate form," the report recommended.
It has also suggested a relook at the Foreign Venture Capital Investors (FVCI) scheme as these investors are basically in the nature of FDI.