Sir, When we say "49"%
of FDI in any sector... Here 49% is of what/which total value? If it is of
companies capital, does that mean foreign investor can't start project of their
own in that sector with 100% investment in it and have to invest 49% only in
Indian company?
It’s basically what the holding
of the investing company has in the said project. The answer for the second
part is yes and it all boils down to what is the investment route, whether
automatic or approval based.
All the projects are decided by
FIPB - Foreign investment promotion board.
The one which has automatic need
not take prior approval of the government and only to declare to the RBI about
their investment and approval route through FIPB.
As per the company's act 1956
each and every MNC company which comes to India has to do so by joining hands
with an Indian company and this all depends on what the investment is and this
is nothing but the FDI & decided by the government from time to time. A
100% FDI means it can be a completely owned company of an MNC.
Sir, FIPB comes under
the automatic route of FDI?
FIPB takes approval routes. Automatic
as I said no approval is needed only a post investment declaration to RBI and Dept.
of Industrial promotion should suffice.
They have a varied list
of sectors which requires Centre Approval
Yes, there are. Certain sectors
are protected.
Sir how does External
commercial borrowing help to facilitate investment? Is it also termed as FDI?
Yes totally. ECBs take different
format, it normally comes with an interest as it states it’s a borrowing but it
can take a form of FDI when the companies which sought to covert the ECB by
giving share holdings in the company. If
so all the required conditions of the FDI have to be met again
Ok Sir... but who
will be shareholder for the proportion of ECB? Can it be the Financial
Institution lending through that route?
Yes. Whoever invests, it can be an
individual or a company or a registered entity like partnerships, LLPs etc. It
should be a legal person in the eyes of statue.
Sir, if a company in
India borrows from a foreign bank, say- based out of US (because of near zero interest
rate) - would it be considered under ECB?
Yes there are ECBs which are
borrowed at the near zero rate of interest. As you said in USA there are people
who want to invest at these low level interest rates as they have excess funds
with them. Many Indian companies try to get these and repay their costly loans
too.
Yes, sir. But it’s
not aloof from its risks of global currency fluctuations
Yes that risk does exist. The
terms and conditions depend on what borrower and lender agrees with. But as far
as how you use these ECB's the rules of the game is fixed by Dept. of Economic Affairs
in hands with RBI.
Sir if it’s true that
ECBs can't be used to invest in Stock market. Then how is it different from the
investor/lender becoming the shareholder?
Stock exchanges are of two types,
primary and secondary.
ECB is a loan and not ownership
and hence unless the same is defined in terms and conditions of loan they can’t
be owner or shareholders.
As far as investment in stock
market is concerned, which is predominantly by FIIs, is to make quick money on
the basis of fluctuations of the market value of the companies. There the
intention is not to be the shareholder or owner of the company. So ECB is
different from investor of shares.
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