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FDI – The Gates are Open

FDI in India

Election is nearing and govt. has finally woken up – govt. has taken a milestone decision to relax foreign direct investments norms in telecom, aviation, retail, insurance and media sectors.

Opening the Flood Gates

Equity investments routed through companies in which majority ownership and control is in the hands of Indians would be treated as fully domestic equity.

An “Indian company” is defined as domestic investment in a company being more than 50% (even by one share) and controlled by Indian partners. So, investments by any such company will now be treated as entirely domestic.

The only exception will be when a joint venture company creates a wholly-owned subsidiary in India. In that situation, the foreign stake in the subsidiary company will be considered as equal to the stake in the holding company.

Example: if a firm with, say, 40% foreign equity and 60% Indian equity had invested Rs 100 crore in another firm, Rs 40 crore of this amount would be treated as FDI. Under the revised norms passed by the Cabinet on Wednesday, it will now be treated as zero FDI.

What does this translate to?

Bhratati example:

Bharti Airtel, Singapore Telecom holds 15.58 per cent direct stake and another 14.4 per cent through a 32 per cent stake in the Sunil Mittal-promoted holding company Bharti Telecom.

Bharti Telecom, owned and controlled by Indians, holds 45 per cent stake in Bharti Airtel. At present, both the stakes held by SingTel were being counted while calculating the FDI level in the listed Bharti Airtel.

However, under the new guidelines, the indirect stake held by SingTel through Bharti Telecom will not be counted as FDI. This means that Bharti Airtel can now get additional foreign investments directly into the company if it so decides

Ditto with Vodafone – will be able to increase its direct stake in Vodafone Essar by 10%.

Sectors like telecom and retail will be the biggest beneficiary – but expect some political opposition (especially from left).

What’s your opinion on FDI?

[sources: 1,2,3, img]

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