In a move aimed at regulating the changing ownership of Indian companies, the government is likely to mandate that any global deal, which has an impact on an Indian company, would need the approval of the regulators here.
This would mean that if the foreign parent of an Indian company is acquired by another foreign company, the transfer of ownership of the Indian company will have to pass the government rubicon.
Till now, no such regulations exist in India even for sensitive sectors like aviation and telecom, as it did not entail any inflow of foreign funds into India. Vodafone did not have to take the approval of the Foreign Investment Promotion Board (FIPB) for acquiring Hutchison?s stake in Indian telecom operator Hutchison Essar as it did not result any fresh investments into India.
However, once the proposed policy is implemented, transferring Hutch?s shareholding in the Indian telecom operator would need the approval of the FIPB.
According to senior government officials, the proposal has twin objectives: to keep track of the beneficial owner of the Indian company and to keep a watch on the promoters of the company due to security issues.
?There have been deals involving third parties which have an impact on the ownership of the Indian company. Such deals needed close examination to ascertain the eventual owner of the Indian company,? senior government officials said.
About 50% of investments coming into India are from sources which are either companies based in tax heavens or through shell investment arms. Another cause of worry for the government is that a substantial chunk of these investments are going into certain key sectors like infrastructure and energy.
Provisions for this may be a part of the proposed Foreign Direct Investment Promotion Act. Besides, local security authorities will be given powers to monitor and review large foreign investments in sensitive areas and sectors. This will mean that investments in sectors like telecom and other infrastructure areas in border areas will be closely monitored by the local security authorities. Moreover, sectoral regulators will have powers to seek information from intelligence agencies on the operations of various companies with foreign investments.
