The government of India?s foreign direct investment (FDI) policy has always had to negotiate very difficult terrain even at the best of times. The whole matter of permitting FDI, therefore, becomes more complex than it should be with different rules and regulations across different sectors.

The latest move to rationalise the FDI policy by treating indirect FDI as domestic if it is routed through an Indian-?owned? and ?controlled? company, has to then be viewed through the prism of political constraints accommodating an economic imperative?in a crisis scenario Indian companies are looking for sources of funds, and FDI is one of the many sources.

Then one should ask whether the latest policy will help solve one of the most contentious issues in FDI?that of indirect FDI. The issue of a lack in clarity in indirect FDI first arose in 2007 when Vodafone acquired 67% stake in what was till then Hutch Essar. The acquisition itself was preceded by large-scale corporate warfare so naturally the next battle ground was FIPB.

The equity structure of Hutch Essar was such that while 33% was held by Essar group, the balance 67%, which Vodafone bought from Hutch, was not in one block. Hutch held direct stake of 52% while the balance 15% was held between the company?s CEO, Asim Ghosh, Max Group?s Analjit Singh and a small firm. Now the catch was that Hutch had stood as guarantor for the loan to Ghosh and Singh, which passed on to Vodafone. So the question was should the equity have been seen as domestic or foreign?

Though the matter was cleared, it was decided to bring in more clarity on such issues. But does the present set of rules bring the necessary clarity on whether the Indian owned and controlled company with FDI can invest in downstream sectors like multi-brand retail or commercial airlines where no FDI is allowed? The government?s response is ?no backdoor entry would be allowed in sectors where FDI is banned?. But that be may going back to square one. Would it not be simpler to just have more liberal and transparent FDI norms across all sectors? Something perhaps for the next government which will take office in May to ponder and act upon.

rishi.raj@expressindia.com