Union Budget 2015: FM proposes to do away with distinction between FPIs & FDI

In the Modi government’s first Budget in July, the government had said it will promote foreign direct investment (FDI) selectively in sectors and raise the composite cap of foreign investment to 49 percent with full Indian management and control through FIPB route.

Ahead of the Budget, Ramesh Iyer, Vice Chairman & CEO of Topsgrup, was confident that the Budget would contain policy reforms and relaxations that will assure stability for promotion of foreign direct investments (FDI) in India and support the new government’s ‘Make in India’ campaign.

In his July Budget, finance minister Arun Jaitley had also talked about raising the composite cap in the insurance sector to 49 percent from 26 percent. However, that did not play out as Jaitley would have hoped as he failed to get approval from Rajya Sabha. Post the winter session, the government passed Insurance Ordinance in December. It is expected to table the Insurance Laws (Amendment) Bill 2015 in this session of the Parliament to replace the Ordinance. The government had to resort to the ordinance route since the bill could not be taken up for discussion in the winter session despite it being approved by a select committee of the Rajya Sabha.

The 49 percent foreign equity investment cap in insurance sector will include foreign portfolio investments and clearly state that control and at all times has to remain in the hands of Indian (resident) entities.

Jaitley in his July Budget had also announced requirement of built-up area and capital conditions for FDI to be reduced from 50,000 square metres to 20,000 square metres and from USD 10 million to USD 5 million respectively for development of smart cities. He had also said there is a need for manufacturing units to be allowed to sell its products through retail, including the e-commerce platforms.

In December 2014, FDI in India had almost doubled to USD 2.16 billion, compared with USD 1.10 billion in the year-ago period. During the April-December period of FY15, FDI rose to USD 21.04 billion as against USD 16.56 billion in the same period previous fiscal, up 27 percent, as per data by Department of Industrial Policy and Promotion (DIPP).

The Union Cabinet has also cleared 100 percent foreign investment in railway infrastructure projects, while foreign investment limit in defence sector has been raised to 49 percent from the current 26 percent, with Indian owners exercising management control.