COMPANY LAW
| Let JVs with small foreign stake enter prohibited sectors: Dipp Wed, 22 Sep 2010 22:03:24 GMT |
| The Economic Times Let JVs with small foreign stake enter prohibited sectors: Dipp NEW DELHI: A key government department has opposed the move to keep companies with even minuscule levels of foreign funding out of sectors such as multi-brand retail, atomic energy, real estate, chit funds and lottery, which are not open to foreign direct investment. The department of industrial policy and promotion (DIPP), the nodal agency for foreign investment policy, wrote to the finance ministry urging it to reconsider the proposal, which was recommended by a group of officers looking into the new policy. The group had also recommended the creation of an oversight body in addition to the foreign investment promotion board (FIPB) to subject all foreign investments to greater scrutiny. The move to bar joint ventures from sectors where FDI is not allowed is inconsistent with the current policy environment, DIPP secretary RP Singh wrote in a letter to the finance ministry. Mr Singh argued that investments by companies such as ITC, Pantaloon and Trent, which operate in the retail space, would be in violation of the policy if the proposed changes are implemented, said a government official familiar with the matter. Similar is the case with real estate companies Unitech and DLF; the Leela Group of Hotels and Indian Hotels that have investments in casino ventures in Goa, the official said, requesting anonymity. “This would imply that Indian companies, even with minimal levels of foreign investment, cannot invest downstream into prohibited sectors, even though, for all practical purposes, they may be Indian companies. Adopting such an approach may create an anomalous position with respect to some major existing Indian-owned and controlled companies,” says the letter. According to the existing FDI policy, joint ventures can invest in the prohibited sectors as long as foreign investment in them is below 49%. The idea behind banning firms that have foreign investment in them from investing in prohibited sectors through subsidiaries is to prevent indirect access to foreign players to these sectors. The government made some changes in the FDI policy on February 13, 2009, allowing what is known as ‘indirect foreign ownership’ in sectors where FDI is not allowed. A series of press notes were published to allow holding companies to invest in sectors such as multi-brand retail if majority ownership in the holding company is with Indian citizens. This kicked off a heated debate on ownership and control of joint ventures, which refuses to die down. Commerce and industry minister Anand Sharma launched a consolidated FDI policy document on December 24, 2009, which incorporated guidelines from various departments like RBI. The first consolidated FDI circular of 2010 was announced on March 31 and the next one is scheduled to be published by the end of this month. Since February 29, various interpretations of the new guidelines allowing indirect FDI and the implications have been the subject to discussions between the finance ministry and the DIPP. |
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