FDI norms are more likely to be tight

The government is planning to tighten norms governing FDI through partly-paid shares, convertible warrants and units issued by venture capital funds (VCFs), as it looks to prevent misuse of these popular instruments. The finance ministry and the department of industrial policy & promotion (DIPP) have decided that the conditions such as sectoral ceilings, minimum-capitalisation and lock-in period governing foreign investment through equity should be applicable to these instruments. The two sides held consultations following an increase in the quantum of FDI flowing through these windows.
The initiative will lay down norms for investment in these instruments, currently cleared by investment regulator, Foreign Investment Promotion Board (FIPB), on a caseto-case basis, two government officials told ET NOW. A large part of the $19-billion FDI into India during the first eight months of the current financial year were routed through these instruments.
The time available for overseas owners of partly-paid shares to convert them into fully-paid shares is proposed to be cut down to six months from 18 months now, said a finance ministry official.
In the case of convertible warrants, the government plans to stipulate that conversion of these warrants into equity shares should happen within 18 months, he said. Currently, foreign investors subscribing to them have three years to convert them into equity shares. Warrants should also be taken into account while calculating total foreign investment in sectors with FDI ceilings, it has been proposed.