What is the latest stand of the government on FDI limits? Is pyramiding allowed or not?

Abhimanyu Gupta, New Delhi

The government's latest stand is that pyramiding is fine so long as the investment company used for the purpose is controlled by Indians. To wit, let us say A Ltd is the operating company in the insurance sector where there is a sectoral cap of 26 per cent FDI. Let us say a foreign company B Ltd has invested 26 per cent therein but teams up with C Ltd an Indian company to float an investment company D Ltd in which C Ltd has a 51 per cent stake and B Ltd 49 per cent. Now D Ltd picks up the remaining 74 per cent stake in A Ltd. This is fine by the government. What is not kosher is if in D Ltd the stakes are the other way round because In that case, the foreign company would be calling the shots in the investment company.

S. MURLIDHARAN

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(This article was published in the Business Line print edition dated January 4, 2010)
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