To accelerate inflow of FDI in India and further simplify the techniques employed in calculation of FDI, Government of India (GOI) is likely to propose a Bill governing indirect shareholdings of foreign investors in Indian companies.
The issue of calculating such indirect shareholding came to the fore recently when Vodafone's USD 11.1 billion buy out of Hutchison Telecom International's direct majority holding in Hutchison-Essar was examined by the FIPB to determine whether the multi layered shareholding structure in Hutchison-Essar breached the FDI ceiling in the telecom sector. The transaction was subsequently cleared by the FIPB, after prolonged deliberation and seeking the opinion of the Law Ministry and the FIPB called for a review of the existing norms to bring about clarity in computation of indirect shareholding of foreign investors.
The proposed Bill is expected to consolidate and incorporate relevant provisions of the Foreign Exchange Management Act, 1999 (FEMA), Companies Act, 1956 and the FDI policy, various Press Notes issued by the Ministry of Commerce and Industry and consider the legal regulations/ structures of other countries concerning indirect shareholding.
Further, it is anticipated that complex transactions would be dealt with in the Bill, thus restraining companies from taking advantage of loopholes in the present legislation and circumventing notified sectoral caps.
In continuation of the ongoing amendments being implemented in the FDI policy, GOI is examining a proposal that seeks to make it obligatory for foreign investors to file declarations as regards their 'beneficial ownership' in Indian ventures.
In the event the proposal is implemented, in sectors where FDI is restricted, the overseas investors would be required to declare to the government their indirect stake holding, for which funds have been made available through loans or other means.
With the introduction of such a provision in the FDI policy, every foreign company investing in India through an entity in another country would be required to give a declaration in this respect.
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