Chillin' out till it needs to be funded
Banking never had it so good. A well meaning government, empowered with the right majority, having accomplished 80% of the reforms the incumbent government even knew which way to go. But that was six months ago. The industry knows better with ICICI and HDFC labeled as majority foreign owned institutions and thus for all future investments to be considered on par with Bank of America, Goldman Sachs and Credit Suisse. Now that was not the intent of the policy, but the other intent of the FDI policy has also uncovered uneasy alliances of faith and the first few mecenaries that built private enterprise 400 years ago. The clarity required is much the same. With one leg required to be in Washington, global giants in Investment Banking would have only one limb left to advise and woo governments in India or China. Haivng to choose between the two typically lets them run to new business in the LatAm geos and that would also happen again I am sure. Coming back to the FDI policy, GS and its clients or that of any other foreign entity cannot invest in multiple enterprises even as minority owner without going through hoops of approval as earlier with SIA, FIPB, MoF and even the CCEA and of course DIPP where the policy is “hung on the door”. Thus the assertions in Sec 4.1.3-ii-a of the consolidated policy are already ill considered and invalid for investment consideration.
When policy was simplified in the last six months and CCEA approval requirement updated for proposals of USD 300m and above, it was much welcomed. However other changes that now count all minority stake investments as domestic entities for downstream investment are back in question. The Government has now clarified that the minority interest basis and subsequent approvals would still be required for such downstream investment. On the other hand any investment more than 50% in the Domestic entity would not be subject to any fractional computation, the entity in question ( and it could be exchange infrastructure like NSE and PTC albeit with prior approval) would be counted as a source of FDI in downstream investment. NRI and OCB investment continues to be subject to SIA approval while also any investment in exchange infrastructure. Any investment in retail except single brand retail continues to be banned outright. ECB issues up to 100 million dollars are on automatic approval and amounts larger than that have been allowed basis sector limits and repatriation requirements.
Insurance FDI continues to cause heartburn to Industry payers with the ceiling of 24% FDI being maintained despite continuous capital requirement of these firms. On anvil however is the inclusion of avenues of debt as Capital for Life, Health and General Insurance JVs in the country. Such debt is however likely to be subordinated or Tier II debt. Max New York Life and Birla Sun Life financed themselves under the old equity structure to the extent of $200mn each in 2009.
Also other new issues in Investment, include Highway Infrastructure Financing norms with bidding now limited to higher net worth requirements. For the larger projects in the Golden Quad and otherwise requiring more than $875 m ( Rs 3500 Crores) a net worth requirement of nearly $377m going up by $1 for each additional $1 spent on the project limits competition to quality firms but rumors indicate these still favor local players like L&T excluding global players from bringing their expertise while government is still spending on 8m per day against a target of 20 km per day. More Financial closure is required on the fast track to drawdown avl take out financing & world bank aid and meet the target of 33000 kms of new quality highways and more for India in the next decade.
Also Project Visas are being considered by the Government to take care of visa short cuts and monitoring by the government required for Chinese labor employed on UMPP and other Power infrastructure projects. Incentives of upto $150K per MW for projects of up to 4GW in Wind Power have also been proposed for investments in Renewable Energy. ( India has 11 GW installed Wind Power capacity from 17000 Wind Turbines, adding 2GW this year, agst a ttal capacity of 150GW and up to 100GW under construction in 20 UMPPs )
Projects on the 100% automatic route in FDI include Venture Capital Funds ( incl AMC set up and Trusts), Portfolio Investments, investments by Multilateral Financial Institutions like IFC, ADB and World Bank. Sectors under 100% approval include Mining, IT (second investment), Agriculture ( Floriculture, Horticulture and Tea Plantations), Alcohol, Cigars & Cigarettes, Power *( Generation, distribution and trading), Advertising, Films, Greenfield Airports, Non News and Current Affairs TV Channel (uplinking), Market Research Services, Highways, Water, Ports, MRTS and Townships.
Projects on the 74% automatic route include existing airports and banking institutions among others. Credit information comanies are allowed 49% FDI including 24% FII Portfolio investments
Investments by FIIs in Distressed Assets are not welcome. Any FDI in Retail except Single Brand Retail is banned. Cash and Carry investment is allowed up to 24%. Investments in Public Sector Banks are allowed up to 20% and Investments in Broadcasting regulated by the technolgy proposed in the investee company across FM, Cable, DTH and HITS
Venture Capital and Portfolio investments from FIIs that have exceeded $20 billion in the 9 months of this year would be subject to changing Tax treaty considerations under the new DTC.(Tax Code)