In Budget it as announced to do away with distinction between types of foreign investments, especially foreign portfolio investment (FPI) and foreign direct investment (FDI) and to have to have a composite cap for foreign investors.

1. What does ""having composite cap"" means?

2. FPI and FDI are all together different, where FPI's are volatile for an econom. So by doing away so won't harm stability of an Indian economy?”

1. composite cap = single cap that covers all type of foreign investment under it

2. FPI's volatility will be there. Now the composite cap is the only controllable for that purpose. With a clear cap, the inconsistencies are gone and will attract lot of FII/FPI. Of course, they have to be under watch. 

  

Sir But how composite cap will control its volatility? or law ill be amended more like tilting towards FDI? They will be involved in management as well?

No, we have consciously allowed volatility, wherever we feel that we need stability or insulation from the global fluctuations, we need to reduce the cap as such.

 

 Sir, composite cap is it really feasible? as we have in some 100% and in some less than it

Yes it is feasible

 

that sector having 100% will be drawn back to composite limit?

Earlier it was x% FDI y%FII z%FPI, now the composite cap will be x+y+z. Sector having 100% will now be exposed to FPI FII etc. It will take both the risk / benefit.

 

sir is it right to say that bringing under composite cap won't effect volatility factor due to FPI's? that impact on economy due to FPI will be same in both cases

composite cap will definitely increase FPI/FII. It can result in zero FDI and 100%FPI also. We have exposed ourselves to the global economy. We gain by getting more investment. Wherever we feel that we must insulate ourselves from the global economy, we can reduce the cap, if not to zero.

 

Ok sir but I don't get main objective behind doing this

As FDI is 'good' for our country, it is 'risk' for the investor. As FPI is 'risk' for the country, it is 'good' for the investor. Since we have now allowed FPI to replace FDI if the investor wants, more money has started flowing in.

As an illustration - lets say the insurance sector had 49% FDI allowed and 26% FPI allowed (before the composite cap).  After the composite cap, it will become 75% foreign investment allowed this can be 75% FDI or 75% FPI or any such combination.

 

How does it benefit to us by adding? as limit for both are still same 26 and 49?

Now there is no such separate limit. It is upto the investor. 

 

Ok that means 75% all together FPI or FDI .. ?

Yes

 

first come first serve?

No, just that it is allowed. It is upto the company as such. If you dont want foreign investment cool

If you want there is a cap beyond which you cant

 

But how is government managing if turn outs to be all FPI?

It is for the company to manage itself. If suddenly the FPI investor withdraws all his money, the company will sink. The company hopes that it will not and there will be no such circumstance that is the faith it has on the Indian economy. If the government wants companies in some critical sector to be insulated, it can place the cap at zero.