Union Finance Ministry on 21 June 2014 accepted the recommendations of Arvind Mayaram Committee on Rationalising the FDI/FPI definition. Arvind Mayaram is the Union Finance Secretary.
The panel suggested to remove the ambiguities over clear demarcation between Foreign Direct Investment (FDI) and Foreign Indirect Investment (FII) and defined them.
Recommendation on Foreign Direct Investment (FDI)
• Foreign investment of 10 percent or more in a listed company will be treated as foreign direct investment (FDI).
• An investor may be allowed to invest below 10 per cent and this can be treated as FDI subject to the condition that the FDI stake is raised to 10 per cent or beyond within one year from the date of the first purchase
• In case an existing FDI falls to a level below 10 percent, it can continue to be treated as FDI without an obligation to restore it to 10% or more, as the original investment was an FDI.
• In a particular company, an investor can hold the investments either under the FPI route or under the FDI route, but not both.
• Foreign Investment in an unlisted company irrespective of threshold limit may be treated as FDI.
Recommendation on Foreign Portfolio Investment (FPI)
• Any investment by way of equity shares, compulsorily convertible preference shares/debentures less than 10 percent of the post-issue paid up equity shall be treated as FPI.
• Any investment less than 10 percent of the post-issue paid up value of each series of convertible debentures of a listed / to be listed Indian investee company by eligible foreign investors shall also be treated as FPI.
• Investments by foreign investors under private placement /arrangement less than 10 percent of post issue paid up capital shall be treated as FPI.
• Individual monitoring of FPI limit of less than 10 percent will be done by the Securities and Exchange Board of India (SEBI) and FPI aggregate limit will be done by the Reserve Bank of India (RBI) like earlier.
• On the exemption from pricing guidelines on exit of Foreign Venture Capital Investors (FVCI), the Committee has recommended to form a separate team of SEBI, RBI and DEA can look into all the aspects of FVCI investment and rationalise the same so as to avoid arbitrage arising from ambiguous pricing guidelines.
• On NRI Investors, the Committee recommended treating non-repatriable investment as domestic and exempting it from FDI related conditions.
• The Committee also recommended reviving the Overseas Corporate Bodies in different form with suitable safeguards and checks so as to enhance NRI investments.
When: 21 June 2014