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India is poised to simplify its overseas investment regime by blurring the lines between Foreign Portfolio Investment (FPI) and Foreign Direct Investment (FDI), according to Economic Affairs Secretary Ajay Seth. This move aims to attract more foreign capital and boost the economy.
Currently, FPI and FDI are subject to different regulations, with FPIs limited to holding 10% of a company's stock, while FDIs can own up to 100% in most sectors. This distinction can create barriers for investors who wish to increase their stake in a company.
To address this, the government proposes to amend the Foreign Exchange Management Act (FEMA) to allow for smoother transitions between FPI and FDI. This would enable investors to increase their holdings beyond the 10% FPI limit without facing unnecessary regulatory hurdles.
Additionally, the government is considering relaxing norms for Indian industrialists whose overseas investments exceed their domestic ones, making it easier for them to invest in India.
The proposed changes also include a simplification of FEMA regulations, which currently consist of eight schedules with "watertight" compartments. The government aims to create a more flexible framework that facilitates the flow of investment between different categories.
The impetus for these reforms stems from the recognition that the current regulations are hindering foreign investment. Gross FDI inflows into India have declined in recent years, from a peak of $85 billion in FY22 to $71 billion in FY24. The government hopes that simplifying the overseas investment regime will reverse this trend and attract more foreign capital.
FDI is already allowed up to 100% in most sectors in India, except for a few strategic or sensitive areas. Therefore, the focus is now shifting towards easing restrictive regulations to create a more investor-friendly environment.
