Friday, 30 September 2011

Govt raises FDI cap in FM radio to 26%

The government on Friday relaxed the foreign direct investment (FDI) norms for the FM radio segment by raising the limit of foreign capital inflows to 26 per cent from 20 per cent. It has also eased the FDI norms regarding construction of old-age homes and educational institutions.

These amendments were done as part of the fourth revision of the Consolidated FDI Policy. The new norms would be effective from October 1. The Department of Industrial Policy and Promotion (DIPP) under the Ministry of Commerce and industry had issued the first Consolidated FDI Policy in April last year with the objective of updating the document every six months.

In July, the Cabinet had approved raising the FDI limit during the third phase of expansion of FM radio broadcasting services.
“This would give foreign shareholders in private radio channels more power to take decisions which was earlier not possible. Besides, this would also induce foreign investors to look into the sector more actively. However, even if the government would have increased it to 49 per cent, rights of the foreign shareholder would have remained the same. But that would have generated more interest among the investors to come in the sector,” said Akash Gupt, executive director, PricewaterhouseCoopers.
The move is expected to improve the content of all the radio channels operating on Friday, which will lead to technology upgrade and draw more investments, added Tushar Chawla, associate partner, Economic Laws Practice.
In the new Consolidated FDI Policy, DIPP exempted construction activities in the education sector and in old-age homes from the conditionalities imposed on FDI in the construction sector, such as the requirement of minimum area and built-up area, minimum amount of investment and lock-in period.
“This would definitely lead to more foreign capital coming in the vocational education and training institutes. The education sector requires large spaces and big campuses and treating those activities, as FDI was unnecessarily raising a lot of complexities. This would also address the demand-supply gap in the education industry,” said Hemal Zobalia, executive director, KPMG.
As far as old-age homes are concerned, DIPP said, this would now lead to more supply of such homes, which were suffering due to shortage of requirements.
The government on Friday also included several activities such as research and development (R&D) in biotechnology, pharmaceuticals and life sciences under the industrial parks scheme, under which FDI of up to 100 per cent is allowed through the automatic route.
“The coverage has been expanded to specifically include R&D in biotechnology, pharmaceuticals and life sciences, given the urgent need to augment research and development infrastructure in these areas as also expand production facilities,” DIPP said. The new policy has also changed FDI policy on conversion of imported capital goods.
In last revision of the FDI policy, the government had allowed conversion of imported capital goods and machinery and pre-incorporation expenses to equity instruments.
The government relaxed it further by allowing such payments to be made directly to the company by the foreign investor.
The DIPP also liberalised the policy concerning introduction of provisions on pledging of shares and opening of non-interest bearing escrow accounts with certain conditionalities. An escrow account is meant for carrying out certain specific financial transactions such as mergers and acquisitions, buy-back of shares, take-overs and custody.
“This will streamline the process for bringing in FDI and provide the investors with options,” DIPP said.

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