The Government has notified the composite caps for simplification of Foreign Direct Investment (FDI) policy to attract foreign investments. All sectors other than banking and defence sectors can now get up to 49 per cent foreign institutional investment through the automatic route. In sectors under government approval route, any transfer of ownership due to foreign investment will require government approval.

As per the new norms, all direct and indirect overseas investments, whether portfolio or FDI, will be subject to a composite foreign investment cap for that particular sector.An FII/FPI/QFI (Schedule 2, 2A and 8 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations, as the case may be) may invest in the capital of an Indian company under the Portfolio Investment Scheme which limits the individual holding of an FII/FPI/QFI below 10 percent of the capital of the company and the aggregate limit for FII/FPI/QFI investment to 24 percent of the capital of the company. This aggregate limit of 24 percent can be increased to the sectoral cap/statutory ceiling, as applicable, by the Indian company concerned through a resolution by its Board of Directors followed by a special resolution of the shareholders and subject to prior intimation to RBI. The aggregate FII/FPI/QFI investment, individually or in conjunction with other kinds of foreign investment will not exceed sectoral/statutory cap.

It is also clarified that total foreign investment shall include all types of foreign investments, direct and indirect, regardless of whether the said investments have been made under Schedules 1 (FDI), 2 (FII), 2A (FPI), 3 (NRI), 6 (FVCI), 8 (QFI), 9 (LLPs) and 10 (DRs) of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations.

Foreign Currency Convertible Bonds and Depository Receipts, having underlying of instruments which can be issued under Schedule 5, being in the nature of debt, shall not be treated as foreign investment. However, any equity holding by a person resident outside India resulting from conversion of any debt instrument under any arrangement shall be reckoned as foreign investment.

Portfolio investment, up to aggregate foreign investment level of 49% or sectoral/statutory cap, whichever is lower, will not be subject to either government approval or compliance of sectoral conditions, provided such investment does not result in transfer of ownership and/or control of Indian entities from resident Indian citizens to non-resident entities.


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The composite foreign investment caps will now encompass all types of foreign investments — foreign direct investment (FDI), foreign institutional investors (FIIs), foreign portfolio investors (FPIs), non-resident Indians (NRIs), foreign venture capital investors (FVCIs), qualified foreign investors (QFIs), limited liability partnerships (LLPs) and depository receipts (DRs). Following this, Indian companies can now have just two kinds of capital-Indian and foreignending the categories that made the FDI policy complicated.

This will immediately benefit sectors such as multi-brand retail and pharmaceuticals that do not have sub-limits within the overall limit and will henceforth not need approval for increasing portfolio investment up to 49 per cent of the total holding.

In case of banking and defence sector, the carve-out for portfolio investment within the overall foreign limit will continue.