The Department of Industrial Policy and Promotion (DIPP) of India’s Ministry of Commerce and Industry recently issued a discussion paper on the relevance of sectoral caps for inbound investment. As a result of these caps, foreign investors may hold only a limited percentage of equity in Indian companies that operate in certain sectors.
Currently, sectoral caps for foreign investment are set at four levels of shareholding: 26%; 49%; 51%; and 74%. In addition, foreign investment in certain sectors is completely prohibited.
Foreign investment in Indian companies is regulated by the Foreign Exchange Management Act, 1999, the foreign direct investment (FDI) policy of the government and the foreign investment regulations put in place by the Reserve Bank of India. Sectoral caps for foreign investment form part of the FDI policy of the government.
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Rajat Sethi is a partner and Simran Dhir is an associate at S&R Associates, a law firm based in New Delhi and Mumbai. They can be contacted at rsethi@snrlaw.in and sdhir@snrlaw.in respectively.
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