VCCircle

Dear Vijay,

As you may be aware foreign investment is regulated under Foreign Exchange Management (Transfer or Issue of Security to persons resident outside India) Regulations, 2000 ("Security Regulations") read with the Foreign Direct Investment Policy ("FDI Policy") of the Government of India.

FDI and FII are two different routes for making foreign investment. FDI is regulated under Schedule I of Security Regulations, whereas investments under FII route are regulated under Schedule II of the Security Regulations. The FDI Policy of the Government of India (unless stated otherwise in the policy itself) regulates only investments under the FDI route (i.e. Schedule I investments). FII investments are permitted upto 24% in all listed companies in India (irespective of the sector). The company concerned has the option of increasing the level of FII investment upto sectoral cap level for FDI, by passing a shareholders resolution.

As far as retail trading is concerned, what is prohibited is FDI. Since, FII investment is not specifically prohibited in retail sector, it is permitted upto 24%. However, since the sectoral for FDI in retail sector (except single brand retail) is zero, the company concerned will not be able to increase the limit any further.

I just wish to clarify that while referring to FII investment, I have referred to investment by FII's under the portfolio investment scheme(i.e. on the stock exchange) and not investment by FII's under the FDI scheme.

Hope this helps.

If you need any further clarifications, you may write back to me at abhishekntripathi@gmail.com.

Regards,
Abhishek