If you are long-term foreign investor in India, it is likely that you have pored over endless number of the so-called ‘press notes’.
For something that is vital to India’s growth, foreign direct investment (FDI) has lacked a proper policy document and has been administered primarily through a series of press notes over many years.
Anand Sharma, minister for commerce and industry wants to change all that.
The ministry has issued a draft foreign direct investment policy, ironically in the form of yet another press note, which will replace the 177 that govern activity now.
“There are people sitting in other countries who are eager to know our policy on foreign investment. Such people will no longer have to go through a large number of press notes,” Sharma said.
FDI rules have been notorious for their inconsistency and vagueness and have led to many corporate wrangles and disputes, including the famous Vodafone vs Income Tax Department controversy over calculation of ‘beneficial’ ownership or indirect ownership.
It was alleged that the definition of ‘foreign ownership’ was too superficial, allowing Hong Kong-based Hutchison Telecom to overcome foreign investment caps by routing its investment through Indian nationals — in turn indebted to Hutchison.
The controversy had forced the government to come out with a clarification — again through a series of press notes — early in 2009.
Critics, however, said press notes created new areas of ambiguity while trying to resolve the existing ones.
However, another controversy, with regard to the applicability of Indian tax laws on a transaction between two parties based outside India, lingers on.
According to the preface of the 66-page document, its intention is to lay down “a regulatory framework which is transparent, predictable, understandable, simple and clear to reduce the regulatory burden and promote foreign direct investment.”
Unlike the earlier ‘me too’ regulation through press notes, the new policy, effective from March 1, will not have supplementary clarifications and modifications.
Instead, the entire document will be republished in case it needs to be amended. The review will be done every six months, according to the draft policy.
In addition, the ministry was also keen to stress that it is open to minor changes in the phrasing of the document and invited suggestions from everyone, including both foreign investors and domestic industries.
Sharma said his ministry was keen to move away from the top-down approach of prescriptive regulation to something more participatory.
“We hope that investors will give us feedback and we are open to suggestions till January 31. After that, we will formulate the final policy over the next two months,” he said.
While the industries are likely to have many suggestions, primarily around allowing more foreign equity participation in areas like retail, banking, media etc, Sharma indicated that he cannot create new policy.
“Matters such as raising FDI cap are matters to be decided at the inter-ministerial level,” he pointed out.
Sharma also said that foreign direct investment during last month stood at $1.74 billion, taking the eight-month tally to $19.38 billion.
The country managed to attract annual foreign investments of $35 billion during the last two years, though the run-rate during the current year points to a lower figure in 2009-10.
Sharma, however, said the government has a target of raising the annual inflows to $50 billion by 2012 and $100 billion by 2017.
FDI inflows will continue to be crucial to India’s growth as the country is expected to require a massive $1.5 trillion over the next ten years in its infrastructure sector alone, he said.
India is currently behind China and the US in terms of total inward foreign direct investment.
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