Government released new FDI policy effective April 1, 2011

The Indian Government has announced the 3rd consolidated foreign direct investment (FDI) policy circular effective from April 1, 2011. The Indian government has made many changes to the FDI policy to attract more foreign direct investment amidst 25% decline in FDI during the eleven month period between April-February 2010-11. Commenting on the new policy, commerce and industry minister Anand Sharma said, "The Circular 1 of 2011 is a part of ongoing efforts of procedure simplification and FDI rationalization which will go a long way in inspiring investor confidence."

The major changes to the FDI policy include a) Removal of the condition of prior approval in case of existing joint ventures/ technical collaborations in the "same field "b) Liberalization of policy for non-cash capital contributions c) FDI in NBFCs and FII investments. The FII investment in Indian company earlier restricted to 24% can now be increased to sectoral cap/ statutory ceiling by Board of Directors resolution followed by special resolution in shareholders meeting. The Government has now decided to permit issue of equity, with prior approval from FIPB, in case of (a) import of capital goods/ machinery/ equipment (including second-hand machinery) and (b) pre-operative/ pre-incorporation expenses (including payments of rent etc.). FDI has been allowed for 18 NBFC activities.

As per the new FDI policy, foreign companies having an existing joint venture in India will not require permission of the local partner to set up a wholly-owned subsidiary in the same field of business. This policy is expected to increase capital flow into the economy as well as employment. However, the new policy can lead to increasing dependency on foreign companies and shut down of small domestic firms not in a position to sustain competition from established foreign players.

Read more about: govt, fdi, economy
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