It is that time of the year again when we all wait in expectation of major policy announcements from the government through the annual Budget. This Budget is all the more crucial since it comes in the backdrop of a decisive mandate to the incumbent United Progressive Alliance led by the Congress. With the comfort of Parliament numbers, this government has a great opportunity to push for a comprehensive and determined agenda of reform. In the M&A space, there are several areas where there is need for liberalisation—some of these could be in the form of policy statements and others to clear ambiguities/facilitate simplification of law.

From a foreign investment perspective, issuance of press notes 2, 3 and 4 (2009 Series) was intended to clarify government’s stance on foreign-owned holding/ foreign-owned holding-cum-operating companies. Conceptually these press notes are based on sound reasoning and provide Indian companies with greater headroom to raise foreign investment. However, these press notes have raised practical issues for foreign investors especially on investments in certain sensitive sectors such as banking, retail, media etc. A plain reading of the press notes indicates that there is a possibility of

indirect foreign interest in multi-brand retailing through downstream investments or effective foreign interest in excess of the limits otherwise permitted in the foreign investment regulations. It would be preferable to explicitly clarify the above matters to encourage foreign investors and provide certainty of regulatory intent.

Recently, the Bharti-MTN deal has attracted significant media coverage. Cross border deals of this nature especially in sensitive sectors such as telecom, test the robustness/ complexity of the regulatory framework. Since the transaction involves a cashless share swap, it would involve approval from the Foreign Investment Promotion Board (FIPB). While there may be some merit in requiring FIPB approval in telecom where there is sectoral limit of 74%, the same is not essential for sectors where 100% foreign investment is permitted and such share swaps should be permitted under the automatic route ie without FIPB approval.

... contd.