Seeking to simplify procedures and put in place uniform norms for foreign portfolio investors, Finance Minister, P. Chidambaram, on Thursday, said the government would follow the international practice with regard to defining foreign direct investment (FDI) and foreign institutional investors (FII).
Stating that government was in consultation with stock market regulator SEBI on a number of issues, Mr. Chidambaram said: “In order to remove the ambiguity that prevails on what is FDI and what is FII, I propose to follow the international practice and lay down a broad principle that, where an investor has a stake of 10 per cent or less in a company, it will be treated as FII and, where an investor has a stake of more than 10 per cent, it will be treated as FDI.’’
“A committee will be constituted to examine the application of the principle and to work out the details expeditiously,’’ he remarked while presenting the Budget.
He said FIIs would be allowed to participate in the exchange-traded currency derivative segment to the extent of their Indian rupee exposure in India. FIIs would also be permitted to use their investment in corporate bonds and government securities as collateral to meet their margin requirements. SEBI would prescribe requirements for angel investor pools by which they could be recognised as category-I AIF venture capital funds, he added.
FDI inflows declined nearly 19 per cent to $1.10 billion in December, 2012, due to global economic uncertainties. For the April-December period of 2012-13, the inflows declined by about 42 per cent to $16.94 billion. Sectors which received large FDI inflows during the nine months of the current fiscal include services, hotel and tourism, metallurgical, construction and automobiles. India received maximum FDI from Mauritius, followed by Japan, Singapore, the Netherlands and the UK. FIIs infused a net amount of $4.31 billion (about Rs.23,035 crore) in Indian equities in February so far, taking the total for the year to $8.4 billion (Rs.45,094 crore). FIIs pumped in $31.01 billion into the domestic market in 2012.
Further, he said procedures for overseas investors would be simplified besides having uniform KYC norms for them. “SEBI will simplify the procedure for the foreign portfolio investors and prescribe uniform registration and other norms by converging the different Know Your Customer (KYC) norms,’’ he said. According to the Finance Minister, depository participants would now register different classes of portfolio investors provided they complied with the KYC guidelines.