India May Widen Foreign Investment Definition

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May 18 – The finance ministry is considering widening the scope of foreign investments to include instruments that give voting rights to foreign investors.

Under the new FDI policy, a company qualifies as a local company if it has less than 50 percent foreign investments and has Indian directors as a majority resident. If the FDI definition revision is approved to include such bonds as above, this may hike foreign holding calculations in companies and lead them to be considered as a foreign firm instead of a local one.

Equity instruments, like convertible bonds with a maturity of 10 or more years, are called convertible debentures and allow voting rights for foreign investors to exert influence on a company.

“There is a need to fine-tune the definition of control so that there is more clarity on the issue. The government needs to look at issues of potential voting rights and instruments that give this option to investors,” a government official told The Economic Times.

“This should reflect when ownership or control is established in a company,” the official added. A company that is labeled as a foreign company is subject to stricter rules following the new FDI policy. FDI rules forbid foreign companies from entering sensitive sectors such as multi-brand retail.