INVESTMENTS INTO INDIA CUT THROUGH SOME RED TAPE

In a move that will significantly improve the ease of doing business in India, especially for foreign investors, the Narendra Modi government has decided to scrap arbitrary distinctions between different classes of foreign investments such as foreign portfolio investors (FPIs), foreign direct investments (FDI), non-resident Indian (NRI), venture capital, etc. and, instead, club all foreign investments under one composite cap.The new policy also brings foreign portfolio investments up to 49 per cent under the automatic approval route. This means portfolio investments up to 49 per cent will no longer be subject to government approvals provided these do not breach the sectoral caps or lead to a change of ownership, management or control.However, sectors that need prior government permission for foreign investments, such as banking and defence, will continue to need this nod. But a senior official said that the Department of Industrial Policy & Promotion is likely to come out with a separate circular to remove the sub-limits in these sectors as well. This may take some time to materialise, though.Analysts said the decision on composite caps will lead to a surge in foreign investments into India by removing the red tape involved in getting approvals, which often held up actual investments. Last year, foreign portfolio investments into India were at $41 billion, a more than 700 per cent increase over the previous year. Foreign direct investment at $31 billion showed a 27 per cent increase over the previous year.Some analysts, however, cautioned that the expected surge in foreign investments is unlikely to take place till the government removed the sub-limits in sectors such as banking, defence, asset reconstruction companies, etc.“This decision can at best be a signal of the government's intent. But I don't think we'll see a dramatic increase in foreign inflows till the sub-limits are removed across the board,” said a leading analyst at a large foreign investment bank.For now, he added, companies in the pharmaceutical, retail, auto and FMCG sectors, among others, will benefit.