The Department of Industrial Policy & Promotion has clarified that composite caps on foreign investments would partially apply in the defence and private banking sectors.
Sub-caps in the categories of foreign portfolio investments (FPI) for defence and foreign institutional investments (FII) for private banking would apply.
This means that in the defence sector, investors can bring in foreign investments in the form of FDI, NRI investments and foreign venture capital fund up to the over-all cap of 49 per cent.
Similarly, in the case of banking, a sub-cap of 49 per cent will only apply in the case of FIIs.
All other categories will be within the composite cap of 74 per cent.
“For all other categories of foreign investments, including FDI, NRI investments, depository receipts, and foreign venture capital fund (FVCF), no sub-caps would exist,” a DIPP official told BusinessLine .
In defence it is only in the category of FPI (which includes FII and QFI) that a sub-cap of 24 per cent will apply. In the older policy, the sub-cap of 24 per cent was for FPI, NRI as well as FVCF.
“In the case of banking, there was no term called FPI under FEMA when the FDI policy was announced, hence we are making the limitations only for FII,” the official said.
The Cabinet allowed composite foreign investment caps, merging all forms of foreign investments on Thursday. The composite caps would apply on most sectors including commodity exchanges, power exchanges, pharmaceuticals, credit information companies and asset reconstruction companies.
“When you have different categories of caps, it leads to a situation where the person who is investing is confused or has to do much more due diligence to see that he doesn’t exceed the given limits. The person receiving the investment is also constantly watchful. So we thought that it is important to treat all foreign investment with the same kind of parity,” Commerce & Industry Minister Nirmala Sitharaman said on Friday.
Wherever there are conditions in a sector, in terms of capitalisation norms etc, those would remain, the official added. The new FDI guidelines will be notified as soon as the minutes of the Cabinet meeting are ready.