The government is likely to issue clarifications to its recent notification that altered foreign direct investment (FDI) norms for Chinese companies planning to invest in India, two people aware of the development said requesting anonymity.
The fresh changes had left businesses with unanswered questions on the “beneficial ownership” of foreign investment arms looking to invest in the country.
“The government is in receipt of industry representations seeking clarity on what percentage of shareholding in an investment vehicle will constitute beneficial ownership. It’s a policy-level decision on whether the intent is to scrutinise all flows from China or prevent the acquisition of Indian companies at depressed valuation. The government does not want to prevent any investment—just scrutinise the deals to ensure that investments are fair and Indian promoters are not losing control of strategically important companies at depressed valuations,” said a government official, the first of the two people cited above.
One suggestion has been to keep the Companies Act 2013 threshold of 10% shareholding in a company to define significant beneficial ownership, said the second of the two people quoted above.
“The other is to keep it at 25%, which is the minimum threshold defined under the Securities and Exchange Board of India (Sebi) Act. The government will also clarify on the aspects of indirect acquisitions so that it does not affect genuine fund infusion,” he said.
The government had on 22 April issued a notification under Fema which required investments originating from seven neighbouring countries including China, to seek prior approval of the government.
Shayan Ghosh in Mumbai contributed to this story.
This article was first published on livemint.com