The government had recently said FDI from neighbouring countries is permitted only through the approval route.
The government may soon provide clear guidelines on foreign direct investment (FDI) from Chinese companies, according to a Mint report.
Businesses had been seeking clarity on rules related to 'beneficial ownership' after the government recently said FDI from countries sharing a land border with India or any 'beneficial owner' of such investment in India will only be allowed through the approval route.
Also Read: New FDI law sends dealmakers into a tizzy
A modification had been made to the FEMA (Foreign Exchange Management Act) to that effect. The amended guidelines had left too many loose ends for guess-work and interpretation by the industry. One of the most prominent is the term beneficial owner which is not defined. The rules cite the term ‘beneficial interest’ only in the context of any investment made by Indian residents.
Government is in receipt of industry representations seeking clarity on what percentage of shareholding in an investment vehicle will constitute beneficial ownership. It's a policy-level decision on whether the intent is to scrutinise all flows from China or prevent an acquisition of Indian companies at depressed valuation," an official told the publication.
Moneycontrol could not independently verify the report.
The report said one suggestion is to keep the shareholding threshold for "beneficial ownership" at 10 percent, as specified under the Companies Act, 2013.
"The other is to keep it at 25 percent, which is the minimum threshold defined under the Securities and Exchange Board of India (SEBI) Act. The government will also clarify on the aspects of indirect acquisitions so that it does not affect genuine fund infusion," a source told the paper.
The new rules have also placed uncertainty on fresh funding for startups, which frequently receive investments from Chinese companies such as Alibaba's Ant Financial and Tencent.
Several private equity funds have asked the Indian government minority stake investments of up to 24 percent in startups without government approval, the report said.
Special Offer: Subscribe to Moneycontrol PRO’s annual plan for ₹1/- per day for the first year and claim exclusive benefits worth ₹20,000. Coupon code: PRO365
