India Thursday announced an updated foreign direct investment (FDI) policy that simplifies joint venture norms and opens up new areas for overseas funds. The updated policy allows overseas firms in existing joint ventures to operate separately in the same business segment. Earlier, they needed prior approval from their Indian partners. ” FDI policy is part of ongoing efforts of procedure simplification and foreign direct investment rationalisation, which will go a long way in inspiring investor confidence,” Commerce and Industry Minister Anand Sharma said in a statement.
According to the updated policy the commerce and industry ministry released, companies have now been classified into only two categories — companies owned or controlled by foreign investors and companies owned and controlled by Indian residents.
The earlier categorisation of investing companies, operating companies and investing-cum-operating companies has been done away with.
“The simplification of joint venture norms will send a good message to foreign investors,” said Manoj Kumar, managing partner of legal advisory firm Hammurabi and Solomon. He said the new policy would give a push to the falling foreign direct investments levels in the country.
Foreign direct investment inflows into India declined 25 percent to $18.3 billion during April-February period of fiscal 2010-11.
Other steps announced by the ministry include allowing conversion of non-cash items such as import of capital goods, pre-operative or pre-incorporation expenses (including payments of rent) to equity.
Earlier only royalty, lump-sum fee and external commercial borrowings were allowed to be converted into equity.
The policy also allows overseas investment for developing and production of seeds and planting material.
“There is a felt need to attract fresh investment and technology inflows into the country, as also to reduce the levels of state intervention in the commercial sphere,” said the ministry statement.
“It is expected that these measures will promote the competitiveness of India as an investment destination and be instrumental in attracting higher levels of FDI and technology inflows into the country.”