'FDI cap in defence, banking to keep fly-by-night operators away'

The Dollar Business Bureau

The Minister of State for Commerce & Industry (Independent Charge), Nirmala Sitharaman addressing at the felicitation of the 1.25 Million International Registration Number (IRN) Certificate for Trade Mark and Madrid Seminar, in New Delhi on July 20, 2015. Source: PIB, Government of India

  Putting a cap on overseas investment in defence and banking sectors will keep fly-by-night operators away from investing in these areas, said the government on Monday.  Union Minister of State for Commerce and Industry Nirmala Sitharaman on Monday clarified the new foreign direct investment (FDI) norms, saying that defence and banking sectors have been kept away from the list of composite cap, because the government does not want investors looking for quick money to enter these sectors. “In defence, as regards the cap which prevailed for FDI, and in banking— particularly the private banking on foreign institutional investors (FIIs) — because we do not want fly-by-night operators or quick money coming and going out, in those two specific areas, yes those specific sub cap will prevail,” Sitharaman told reporters on the sidelines of a seminar on global trade mark norms organised by FICCI (Federation of Indian Chambers of Commerce and Industry). Last week, the government had introduced the concept of composite cap for all foreign fundings, including FIIs and FPIs (Foreign Portfolio Investors). The new rule is aimed at simplifying the investment procedures and attracting more foreign funding into the country. As per norms, overseas investors can fund Indian companies through FDI or they can buy shares by investing in the stock market through FIIs. Foreign currency also comes in from NRI investors and Depository Receipts (DRs). Money flowing in through FDI is considered stable, as such investors cannot withdraw their money before a certain period. In stock market, investors can take their money back anytime. As per the existing norms, the government allows up to 74% foreign investment in banking sector but the limit for foreign institutional investors (FIIs) in the sector is 49%. Similarly in defence, the total FDI is allowed up to 49% but investment through FIIs has been capped at 24%.    

July 20, 2015 | 4:41 pm IST.