The Government has constituted a four-member committee headed by Economic Affairs Secretary Arvind Mayaram for giving clear definitions to Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII), with an aim to remove ambiguity over the two types of foreign investments.
The DIPP Secretary, an RBI Deputy Governor and a SEBI Whole-time Member are the other members of the “high power committee.”
It will take about two-and-a-half months to come out with the report, Mr. Mayaram told PTI.
“There is a lot of confusion in the mind of foreign investors because there is no distinction between FDI and FII … The committee has been constituted pursuant to the budget announcements by the Finance Minister. It will simplify definition as to what constitutes FII and what constitutes FDI,” he said.
He, however, clarified that the panel would look at the definition of FDI and FII and not the foreign investment caps in different sectors.
“We are looking at definition not cap. How do you define FDI, how do you define portfolio investment ...The committee will come up with the definition.”
At present, if an investor has a stake of 10 per cent or less in a company, the investment is treated as foreign institutional investment. If an investor has a stake of more than 10 per cent, it is treated as foreign direct investment.
“That primarily is on account of the fact that 10 per cent shareholding gives you some voice in the management ... Similarly, SEBI also has this requirement that individual FII will not invest more than that in a company,” Mr. Mayaram said.
Finance Minister P Chidambaram, in his Budget speech, had proposed to follow the international practice with regard to defining FDI and FII.
The committee would be constituted to examine the application of the principle and to work out the details expeditiously, he had said.