New Foreign Direct Investment guidelines issued in India

Posted: 19/03/2009 In February 2009, the Indian Government issued three new foreign direct investment guidelines (“New Guidelines”). In our view, the New Guidelines have the potential to dramatically alter the foreign investment landscape in India, which has been considered to be unnecessarily restricted. Prior to the New Guidelines, any domestic investment made by an Indian company part-owned by foreign interests required the approval of India’s foreign investment regulator, the Foreign Investment Promotion Board (“FIPB”). As many publicly listed Indian companies have some level of foreign ownership, FIPB approval was required for many proposed investments in India. Under the New Guidelines, FIPB approval is no longer required if the company making the investment is Indian “owned” and “controlled” i.e. where at least 50% of the shares in the company are held or controlled by resident Indians. As such, FIPB approval will not be required for investments made by companies having less than 49.99% foreign ownership. While some people have criticised the New Guidelines for containing some perceived contradictions, the New Guidelines are nonetheless expected to generate a larger appetite for foreign capital and facilitate an easier inflow of funds to India (most welcome in the current economic climate). If you are interested in exploring investment opportunities in India (which is the second fastest growing economy in the world), please contact us.