The curious case of ‘composite caps’

By Vaibhav Kakkar and Sahil Arora, Luthra & Luthra Law Offices
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In a press release dated 16 July, India’s cabinet said that in an attempt to ensure that “uniformity and simplicity are brought across the sectors in the FDI policy for attracting foreign investments”, it had approved a proposal by the Department of Industrial Policy and Promotion (DIPP) to introduce “composite caps”. Composite caps envisage that the sectoral caps specified in the FDI policy would be “composite” for all forms of foreign investments and that there would no longer be any sub-caps for foreign investments.

Vaibhav Kakkar
Vaibhav Kakkar

The press release was cheered by the industry and markets, with the expectation that composite caps would mean the obliteration of sub-limits across the board. However, the jubilation was short-lived, and a closer examination of the fine print suggested that the composite caps framework was applicable “unless provided otherwise” by the sectoral policy.

Coupled with Press Note No. 8 of 2015 issued by the DIPP soon after, it became apparent that composite caps would not be applicable to the defence and private-banking sectors, which would have immediately benefited from the amendment by virtue of having a relatively large number of listed companies and therefore the ability to access foreign portfolio investment (FPI).

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Luthra & Luthra Law Offices is a full-service law firm with offices in New Delhi, Mumbai and Bangalore. Vaibhav Kakkar is a partner and Sahil Arora is an associate at the firm. This article is intended for general informational purposes only and is not a substitute for legal advice.

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