A fortnight after the Cabinet approved a composite-cap policy for foreign investment, the Department of Industrial Policy and Promotion has released a press note clarifying that the foreign portfolio investment/FVCI sub-limits in the sensitive defence and private sector banking sectors will remain at 24% and 49%, respectively.
In the defence sector, portfolio investment by FPIs/FIIs/NRIs/QFIs and foreign venture capital funds together or separately will not exceed 24% of the total equity of the investee/joint venture company, the DIPP said, adding that portfolio investments will be under automatic route. Foreign investment above 49% could be allowed with approval from the cabinet committee on security if a proposal involves modernisation and transfer of state-of-the-art technology.
In the private banking sector, where sectoral cap is 74%, FPI/FII/QFI investment limits will continue to be 49% of total paid-up capital of the company, it said. Prior to the new composite cap policy also, FPI investment of up to 49% was permissible. The investments would continue to be subject to a resolution by the board of directors of the bank followed by a special resolution to that effect by its general body.
The sectors that would benefit the most from the composite cap policy include commodity and power exchanges, credit information companies (CIC) and infrastructure companies in the securities market (such as stock exchanges, depositories and clearing corporations). It is clarified that there are no sub-limits of portfolio investment and other kinds of foreign investments in commexes, CICs and infrastructure companies in the securities markets, the DIPP said.
The government reiterated that in multi-brand retail, 51% foreign investment is allowed via the government route. In insurance and pension, foreign investment beyond 26% and upto 49% will need government approval. In brownfield pharma, 100% foreign investment is allowed via government approval.
In the case of print media (newspapers and periodicals and Indian editions of foreign magazines), the foreign investment cap will remain at 26% with government approval.
The sectors which are already under 100% automatic route and are without conditionalities would not be affected.
Total foreign investment, direct and indirect, in an entity will not exceed the sectoral/statutory cap. Any existing foreign investment already made in accordance with the policy in existence will not require any modification to conform to these amendments.
Commerce minister Nirmala Sitharaman had earlier said the government has retained the FPI/FII sub-limits in defence and private sector banking sectors at the extant level to ensure that these sensitive sectors are not affected by ‘fly by night operators’.