DIPP updates foreign direct investment policy

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On 10 April the Department of Industrial Policy and Promotion (DIPP) released a revised version of the consolidated foreign direct investment (FDI) policy through circular 1 of 2012. The new FDI policy subsumes the previous version of the FDI policy and press notes issued before 9 April. The key changes are as follows:

FDI and investments by foreign institutional investors (FIIs) in commodity exchanges were earlier subject to government approval and were subject to a combined cap of 49%. Within this cap, FIIs could invest 23% and FDI investment was capped at 26% under the portfolio investment scheme (PIS). Under the new FDI policy, government approval is still required for FDI in commodity exchanges, however, the policy has been liberalized to the extent that FIIs can invest using the PIS under the automatic route without obtaining government approval.

Leasing under NBFCs

The FDI policy lists “leasing and finance” as an activity in which foreign investment in a non-banking finance company (NBFC) is allowed under the automatic route. The new policy clarifies that leasing and finance includes only financial leases and not operating leases.

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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.

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