In a move that would facilitate big-ticket Indian M&As abroad, the government is likely to remove the cap on the investments that a domestic company can make overseas.
According to current regulations, an Indian company is allowed to invest only up to 300% of its net worth a year overseas to acquire assets. This has led to Indian companies falling out of contention for several major international M&A deals.
In addition, the regulations also forced Indian companies to structure deals through complex routes and investments arms abroad to route funds for investment over and above the permissible limit.
?Now any investment above the limit requires multiple permissions, leading to delays in finalising deals and companies from other countries gaining a lead over Indian companies. In addition, Indian companies are now in a position to raise funds easily to finance acquisitions and mergers abroad. Any sort of cap on investments abroad will only be counter productive,? admitted a senior government official.
Besides, partnership firms registered under the provisions of the Indian Partnership Act, 1932, are currently permitted overseas investments not exceeding 200% of their net worth. Sources said that the government is likely to raise this limit to 300% of net worth.
According to analysts, with Indian companies looking acquire overseas ventures to spread their global footprint, such a move would come as a major boost. However, the government is likely to ask companies to furnish details of funding if the investment is over a certain limit. ?RBI will set a threshold limit. Any investment beyond the threshold limit will be examined,? said officials.
The proposal to lift the overseas investment cap is only the latest in a string of measures taken by the government to free up rules governing such investments by Indian companies. It has recently hiked the limit on overseas portfolio investment by Indian companies from 35% of net worth to 50% of net worth. It has also allowed mutual funds to make aggregate investments of up to $5 billion overseas, up from the earlier limit of $4 billion.
In 2007, India Inc spent $32.73 billion on overseas M&As, compared to the $15 billion spent by foreign firms for acquisitions in India.
According to a joint finding by Invest in France and Invest in Germany, FDI outflow from India to the European Union alone could cross the $25-billion mark this year, up from an estimated $16 billion in 2006.