Life could soon be a lot easier for the holding and investment arms of foreign companies operating in India. In a move that would significantly loosen the government?s grip over such arms, the Centre is likely to allow foreign corporations to park funds in these holding companies. Under present norms, foreign holding companies are allowed to bring in funds only for specific investments with prior government permission.
In addition, holding companies will also be allowed to invest in various downstream ventures without prior permission as long as the investment falls within the specified sectoral cap. Under the present policy, any investment by a foreign holding company needs prior approval of the Foreign Investment Promotion Board (FIPB).
The move also means that a foreign company?s holding or investment arm would no longer fall under the purview of sector specific caps, and could even be wholly owned by the overseas parent. However, the holding company?s equity stake in a domestic venture would be accounted for on a pro-rata basis.
?The government wants to ease the flow of funds into the country. Allowing holding companies and investment companies to park funds and invest across sectors without prior permission would ease their operations,? said a government official.
The significant step would mean that a foreign company or a local venture with foreign investment can set up a holding company in India, bring in funds and park them domestically. The company would also be able to invest in downstream ventures without seeking the permission of FIPB, as long as such investments follow the foreign direct investment norms.
Current restrictions on foreign holding companies raising funds in the domestic market are also expected to be diluted. Sources said the government is currently working out the details regarding this.
According to present policy, foreign-owned holding companies would have to bring in the requisite funds for investments only from abroad and not leverage them from the domestic market. However, there are no restrictions on downstream ventures raising debt or equity from the domestic market.
The government has been taking a number of steps to ease the flow of foreign funds into India. In addition, several measures are also planned to ease the procedure for foreign companies to set up operations as well as invest in domestic companies.