Ministries meet on May 21 to define control in FDI policy

Foreign investors have been concerned about the conflicting definitions of control. The finance and commerce ministers will meet to finalise the definition of control, sources told CNBC-TV18. This comes on the back of concerns over the definition of control in the FDI policy. Aakansha Sethi reports

The Securities and Exchange Board of India (Sebi) takeover code and the proposed Companies Bill define control as the right to appoint majority directors as well as to control management and policy decisions including via shareholder agreements.

The foreign direct investment (FDI) policy defines control only as the right to appoint majority directors and because of this conflicting definition, there has been a conflict over what is defined as an Indian-controlled company. Hence, investments of companies such as Wal-Mart in retail and Singtel in Vodafone in telecom have come under the scanner.

Clarity on this definition will help foreign investors make downstream investments even in sectors where there are FDI caps. On May 21, the finance minister and Anand Sharma will meet to hammer out the details.

The finance ministry has proposed that the definition of control in the Companies Act and the Sebi takeover code which is not only the right to appoint majority directors but also to influence management decisions and policy decisions should override that in the FDI policy.

So, these changes will be made in Foreign Exchange Management Act (Fema) and this will now be the definition. The fine print will be clarified by both the ministers in this meeting on the May 21 but this is been an issue which is been lagging for many years now. So, finally some clarity expected on this which will bring clarity to foreign investors as well.