The union government has accepted a report on rationalising definitions of FDI and FII, said the finance ministry in a statement on Saturday.
The report said, “If an investor has 10 per cent stake or less in a company, it will be treated as FII and if an investor has over 10 per cent stake, it will be treated as FDI.”
A committee will be constituted to examine the application of the principle and to work out the details expeditiously.
The report further stated, “If the stake is not raised to 10 per cent or above, then the investment can be treated as portfolio investment. Among various recommendations, the panel has suggested that foreign investment in an unlisted company, irrespective of the threshold limit, may be treated as FDI.
The committee has recommended the merger of the FII and Qualified Foreign Investors (QFI) regimes under the new Foreign Portfolio Investors (FPI) regime, and this has been notified by SEBI and RBI in their respective regulations.
FPI includes portfolio investors such as foreign institutional investors (FIIs) and qualified foreign investors (QFIs). In a company, an investor can hold investments under FPI or FDI route, but not both.
Regarding NRI investors, it said special privileges are also available to them in terms of the Overseas Citizenship Act and the provision to make “non-repatriable” investments.
“This position would remain and to reinforce the same, it may be further examined if non-repatriable investment by an NRI can be treated as ‘domestic’ as also an enabling mechanism to enable such investment to come via corporate form,” the report recommended.
(Edited by Joby Puthuparampil Johnson)