Nod to Composite Cap on Foreign Investment

From now, all FIIs (foreign institutional investors), NRIs (non-resident Indians) and other foreign investments will be clubbed. It will be constituted as a composite cap. The Cabinet allowed composite foreign investment caps, merging those on foreign direct investment and portfolio investment. The move will benefit companies in single-brand retail (sale of single brand in all outlets e.g. Reebok, Nike, etc.), credit information business (information about a person’s ability to lend money) and commodity and power exchanges (rules and procedures for the trading of commodities and related investments,); it is not applicable to banks and defence companies.

The Foreign Portfolio Investment (FPI) is entry of funds in a country where foreigners deposit money in a country’s bank or make purchases in the country’s stock and bond market, particularly for speculation. The Portfolio Investment up to an aggregate of 49 per cent be allowed without being subject to government approval and sectoral norms. The FPI cap would remain at 24 per cent in defence and 49 per cent in private sector banks. Subject to certain conditions, foreign investment may exceed 49 per cent in defence, with the approval of the Cabinet Committee on Security.

It would be possible to monitor FPI investments, as these would continue to be separate from foreign direct investment, though the limits would be merged.