The Centre’s efforts to bring in a composite cap for foreign investments of all categories has been delayed as the Power Ministry is yet to clarify how the cap is going to work for power exchanges.

“It is the last hurdle that is to be cleared. As soon as we have clarity on power exchanges, the proposal for composite cap can be submitted to the Cabinet for clearance,” an official in the Department of Industrial Policy & Promotion (DIPP) told BusinessLine .

Power exchanges already have a composite foreign investment cap of 49 per cent, but it is subject to sub-limits of 26 per cent for FDI and 23 per cent for Foreign Portfolio Investment/Foreign Institutional Investment (FPI/FII).

“A call has to be taken on whether the sub-limits should continue or be removed. The Power Ministry will give its suggestion on the matter, following which a decision would be taken,” the official added.

A decision also has to be taken on whether investments by non-resident Indians and foreign venture capital firms should be allowed in power exchanges, apart from FDI and FII/FPI.

While FDI is seen as long-term investment, the nature of FII/FPI is more volatile.

Bid to remove separate limits

The Government is working to remove separate limits for different categories of foreign investments and replacing them with a composite cap encompassing foreign portfolio investment, NRI investment, depository receipts, foreign currency convertible bonds and fully and mandatorily convertible preference shares or debentures.

The DIPP has further proposed that automatic clearance be given to foreign investments up to 49 per cent for all sectors, except defence, insurance and media.

According to the report of the committee on composite caps, under former Finance Secretary Arvind Mayaram, the composite sectoral cap will provide the advantage of fungibility of limits in favour of FDI and can accommodate any class of investor coming under FDI as well as FPI routes who would be eligible to invest within the available limit. There was initially disagreement between DIPP and the Finance Ministry over how to treat portfolio investments in the pharmaceutical sector, with the DIPP proposing that Government approval be taken for foreign portfolio investments crossing 24 per cent in drug companies.

It, however, gave up its demand facing opposition from the Finance Ministry. It has been decided that in pharmaceuticals, too, automatic approval for all foreign investments would be available up to 49 per cent.

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