Budget 2021

Union Budget 2018: ‘Separate policies soon on outward direct investment, hybrid instruments’

Hybrid instruments are suitable for attracting foreign investments in several niche areas, especially for the startups and venture capital firms. (Representational image)   | Photo Credit: Thulasi Kakkat

The government will bring out separate policies on Outward Direct Investment (ODI) as well as hybrid instruments, Finance Minister Arun Jaitley said on Thursday.

Pointing out that ODI from India was about $15 billion per annum, Mr. Jaitley said in his 2018-19 Budget speech that “the government will review existing guidelines and processes and bring out a coherent and integrated ODI policy.”

He also said that the government would evolve a separate policy for hybrid instruments, adding that “hybrid instruments are suitable for attracting foreign investments in several niche areas, especially for the start-ups and venture capital firms.”

In his Budget 2016-17 announcements, Mr. Jaitley had said, “The basket of eligible FDI instruments will be expanded to include hybrid instruments subject to certain conditions.”

The Reserve Bank of India (RBI) had pointed out that some Indian companies were raising funds under the FDI route through issue of hybrid instruments such as optionally convertible/ partially convertible debentures which are intrinsically debt-like instruments. It said in June 2007 that, “Routing of debt flows through the FDI route circumvents the framework in place for regulating debt flows into the country.” The RBI then clarified that only instruments that are fully and mandatorily convertible into equity, within a specified time, would be reckoned as part of equity under the Foreign Direct Investment (FDI) policy and eligible to be issued to persons residing outside India under the FDI scheme in terms of Foreign Exchange Management (Transfer and Issue of shares by a Person Resident outside India) Regulations.

Reform push

Mr. Jaitley said in his FY’19 Budget speech that as a result of the reforms undertaken by the government, the FDI had gone up. There is a financial outlay of ₹281 crore in FY’19 for Scheme of Investment Promotion (SIP) and Startup India. The SIP aims to make India among the top 10 most preferred FDI destinations in the world and among the top 50 in the ranking of countries by the World Bank on ‘Ease of Doing Business Index.’ Its objective is also to improve investor confidence to boost investment and economic growth. During 2017-18 (April-September), net FDI was $19.6 billion as compared to $20.9 billion in 2016-17 (April-September), while net portfolio was $14.5 billion in 2017-18 (April-September) as against $8.2 billion in the corresponding period of the previous year, the government said.

According to India Brand Equity Foundation (IBEF), “Outbound investments from India have undergone a considerable change (in the ) last decade or so.

While in the first half, overseas investments were directed to resource rich countries such as Australia, UAE and Sudan, in the latter half, (they were) channelled into countries providing higher tax benefits such as Mauritius, Singapore, British Virgin Islands and the Netherlands.” It added that “Indian firms invest in foreign shores primarily through Mergers and Acquisition (M&A) transactions. With rising M&A activity, companies will get direct access to newer and more extensive markets and better technologies, which would enable them to increase their customer base and achieve a global reach.”

Stating that overseas investment was one of the foremost steps to enter the global marketplace, the IBEF said the Indian industry was projected to increase its revenue from Africa.

“IT services, infrastructure, agriculture, pharmaceuticals and consumer goods are vital to India boosting Africa revenues to $160 billion by 2025, as per McKinsey & Co,” the IBEF said.

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Printable version | Dec 9, 2021 11:32:36 AM | https://www.thehindu.com/business/budget/government-to-formulate-separate-policy-for-hybrid-instruments/article22620291.ece

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