In a move that could redefine the role of the Foreign Investment Promotion Board (FIPB), the government is likely to mandate that only fresh foreign investment proposals would need its clearance. This may be the first step in the direction of the government?s plan to wind up FIPB and replace it with an investment promotion board.
As a part of the new foreign direct investment (FDI) policy, companies wishing to issue fresh shares to existing foreign shareholders can do so without the government?s nod, as long as it does not result in an increase in the proportion of foreign equity.
This means that a telecom company with 74% foreign equity could raise additional funds from overseas partners without FIPB permission. This can be done by expanding the equity base of the company and allocating the foreign partner its proportionate share. At preset, additional equity to a foreign partner in any sector requires prior government permission.
Take, for example, a telecom company with Rs 100-crore equity and a 74% foreign stake that plans to expand its equity to Rs 150 crore. The foreign equity holders could bring in additional funds to acquire its share of equity without the permission of the government. But it would have to inform RBI once the funds are brought in.
This would give leeway to Indian companies operating in sectors with strict sectoral foreign investment caps to raise funds from international partners. In addition, they would now be able issue options and warrants to international companies without government scrutiny.
The proposal would also mean that foreign companies wanting to expand the scope of operations and add new functions to its existing portfolio of activities would not have to seek separate FIPB permission for every fresh activity. Current rules require companies wanting to expand operations to seek government approval for every additional activity. For instance, at present an automobile maker needs separate government permission for marketing, market surveys and R&D.