Monday, September 15, 2008


The Government of India, as it appears from the media report, is considering a mandatory approval by Foreign Investment Promotion Board (FIPB) / Secretariat of Industrial Approval (SIA) Govt. of India before any downstream investments are made by the Companies who are currently owned partly or fully by non-resident Companies or non- resident individuals.
As per the current policy investments in India by foreign companies and foreign nationals besides non-resident Indians are quite liberal and except a very small list of activities in which foreign investments are banned and some sectoral caps in certain specific industries / service sectors, the investment by foreign companies, foreign nationals and non-resident Indians are under automatic route. In only some specific circumstances the list being very small, permission of the Government of India is necessary. The proposed amendment is being brought in, in view of apprehended misuse of the automatic approval scheme. The proposal of the Government would create a big hurdle in operation of a large number of Indian Companies where there is a certain degree of foreign shareholding and almost all major or minor investments made by these Companies will require approval of the Government of India. This is against the liberalized policy and the Government should reconsider its thinking.

Government of India to prescribe that all the Companies having shareholding of foreign companies, foreigners and non resident Indians may disclose such shareholding in their financial statements and / or annual returns filed with the Registrar of Companies. Besides such a disclosure they should also enclose a certificate from the auditors of the Company that the downstream investments made by these Companies adhere to FEMA restrictions including sectoral caps and the fact that neither directly nor indirectly, the beneficial interest of foreigners and foreign companies have breached beyond sectoral limits. This Certificate from auditors can also confirm that no such investments have been made by such companies in the prohibited sectors including real estate, agriculture, SSI etc. The Reserve Bank of India may consider making it mandatory for all the Companies having foreign shareholding to file the aforesaid Certificate with RBI on an annual basis. The Department of Industrial Policy and Promotion, Ministry of Industries, Government of India may please consider an appropriate revision of Press Note No. 9 (1999 series).


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