Easy FDI : Foreign companies can bypass allies for new joint ventures

The government on Thursday announced liberalised norms to lure more foreign direct investments, which have been falling of late. Among the significant decisions was one that does away with the norm for foreign companies to seek their existing partner’s approval to strike more joint ventures in the same field.

This norm had become a sore point with several foreign companies which had hostile joint venture partners that did not allow them to enter into similar tie-ups with other Indian companies.

The government has also simplified the categories of companies to facilitate downstream investments.

Companies have now been classified into only two categories — ‘companies owned or controlled by foreign investors’ and ‘companies owned and controlled by Indian residents’, an official release said.

The earlier categorisation of ‘investing companies’, ‘operating companies’ and ‘investing-cum-operating companies’ has been done away with.

The government has also liberalised norms to encourage much-needed foreign investments in the agriculture sector. FDI will now be permitted in the development and production of seeds and planting material without controlled environmental conditions.
The government has also liberalised conditions for conversion of non-cash items into equity to help in flow of business in certain cases. Such cases include issue of equity for import of capital goods, machinery, equipment and also for payment of pre-operative, pre-incorporation expenses, including rent.

The government has also given flexibility to companies on pricing of their convertible instruments like warrants, foreign currency convertible warrants.

Instead of specifying the price of convertible instruments upfront, companies will now have the option of prescribing a conversion formula, subject to the pricing guidelines laid down by the Foreign Exchange Management Act and Securities and Exchange Board of India. This will help the recipient companies in obtaining a better valuation based upon their performance, the release said.
Foreign direct investments into India have been witnessing a decline.

During Apr-Feb, the first 11 months of the current financial year, FDI into the country stood at $18.3 billion, down 25.6% on year, a government official had said.