FDI in India
Election is nearing and govt. has finally woken up – govt. has taken a milestone decision to relax foreign direct investments norms in telecom, aviation, retail, insurance and media sectors.
Opening the Flood Gates
Equity investments routed through companies in which majority ownership and control is in the hands of Indians would be treated as fully domestic equity.
An “Indian company” is defined as domestic investment in a company being more than 50% (even by one share) and controlled by Indian partners. So, investments by any such company will now be treated as entirely domestic.
The only exception will be when a joint venture company creates a wholly-owned subsidiary in India. In that situation, the foreign stake in the subsidiary company will be considered as equal to the stake in the holding company.
Example: if a firm with, say, 40% foreign equity and 60% Indian equity had invested Rs 100 crore in another firm, Rs 40 crore of this amount would be treated as FDI. Under the revised norms passed by the Cabinet on Wednesday, it will now be treated as zero FDI.
What does this translate to?
Bhratati example:
Bharti Airtel, Singapore Telecom holds 15.58 per cent direct stake and another 14.4 per cent through a 32 per cent stake in the Sunil Mittal-promoted holding company Bharti Telecom.
Bharti Telecom, owned and controlled by Indians, holds 45 per cent stake in Bharti Airtel. At present, both the stakes held by SingTel were being counted while calculating the FDI level in the listed Bharti Airtel.
However, under the new guidelines, the indirect stake held by SingTel through Bharti Telecom will not be counted as FDI. This means that Bharti Airtel can now get additional foreign investments directly into the company if it so decides
Ditto with Vodafone – will be able to increase its direct stake in Vodafone Essar by 10%.
Sectors like telecom and retail will be the biggest beneficiary – but expect some political opposition (especially from left).
What’s your opinion on FDI?
What are the implications of this at a startup investment stage?
I assume companies will not spend money [more money now from FDI] too fast too furious like Subhiska.
My theory on FDI is this: Its good as long as the investment fetcher (for lack of a better word) has made an honest attempt to generate the investment within India. For every FDI, which could have been an ‘Indian’ investment its a lost opportunity, right?. I feel there is tremendous potential to generate funds using Angel funding and “Angel networks” within India. I’m not sure if that is happening enough. A kinda parallel I would like to draw is the situation of workers in US. For every H1B worker who lands a job here which could have been fulfilled by a US national its their loss. In this case the situation is little different (coz H1B workers are cheaper), more aggravated and apparent since the US nationals are actively looking out for a job. But its still a lost opportunity.
& No, I’m not marketing BJP’s ‘swadesi’ agenda 
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At the same time I realize that every ‘unfulfilled’ investment for which a FDI could have been made is also a lost opportunity. I think its really hard to have that perfect balance but right now we are not close to even optimal. Say what guys? Btw its just a theory don’t get too critical
Aaa bail mujhe marr. What else can I say. Protectionism is good for a young economy but I doubt the new “liberals and educated” people of India have time to think about minor details. I love capitalism as much as the next guy but people must not forget what capitalism is, its maximizing profit and not “sugar and spice and everything nice”. The socialist tendencies of young India promoted by the likes of Nehru saved our asses. Not like IMF didn’t get us finally, our people are so easily corrupted.
“What does this translates to?”
should have been
“What does this translate to?