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Wednesday, Feb 18, 2009
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Business Daily from THE HINDU group of publications Wednesday, Feb 18, 2009 ePaper | Mobile/PDA Version | Audio | Blogs |
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Life Insurance Money & Banking - Foreign Direct Investment Web Extras - Policy Insurance sector excluded from new norms for total foreign investment Our Bureau New Delhi, Feb. 17 The insurance sector has been kept out of the recent Government guidelines for calculation of total foreign investment in Indian companies. This is because the insurance sector is specifically governed under a statute that specifies the foreign direct investment (FDI) limit. The Commerce and Industry Ministry has, in its latest press note on guidelines for computation of total foreign investment, clarified that the new methodology for determining the total foreign investment would be applicable for all sectors, except in those governed specifically under any statutes or rules. “Thus, for the present purposes this methodology will not be applicable in the insurance sector where it will continue to be governed by the relevant regulations”, said the press note. Currently, the FDI sectoral cap in the insurance sector is pegged at 26 per cent. The Government had recently introduced an insurance amendment Bill in Parliament that seeks to increase the FDI limit in insurance sector from 26 per cent to 49 per cent. Meanwhile, amid media reports that HDFC was awaiting certain clarity pertaining to FDI norms, Mr Deepak Parekh its Chairman categorically pointed out, “We are an Indian company, managed by Indians.” No impactHe said that the FDI norms would not impact HDFC. “It clarifies the confusion on the direct and indirect investment. First of all, insurance is not included because it is governed by a separate Act,” he said adding that sectors that would benefit from the new formula are retail, telecom, civil aviation and real estate. “These sectors will benefit from the change in definition of only taking direct investment and not taking indirect investment,” Mr Parekh pointed out. Even as the Government has issued detailed guidelines on calculation of total foreign investment, analysts also pointed out that confusion prevails over the issue of foreign investments in restricted sectors. According to Mr Ketan Dalal, Executive Director Price WaterhouseCoopers, while the new norms are unlikely to impact past investments, it may not give companies much headroom for accommodating further foreign investment, in certain cases. “If the clubbed FDI, FII, NRI, GDR, ADR and FCCBs investments add-up to over 50 per cent in an investing company or if the investing company is controlled by non-resident entities, then, as per the new regime, the entire investment by this company into a downstream entity will be considered as indirect foreign investment. This means that, even if, on the basis of the earlier pro-rata method of calculation, the foreign investment was with the FDI norms in its downstream entities (and therefore, could have left further headroom), the new formula can actually end-up reducing or eliminating such headroom,” he said. More Stories on : Life Insurance | Foreign Direct Investment | Policy
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