Foreign-owned Indian companies allowed to invest downstream

The government has allowed foreign companies to make direct investment in downstream activities, subject to sectoral and overall limits, by merely informing the Reserve Bank of India (RBI) rather than seeking prior FIPB approval for making any such investments.

The companies will, however, be required to inform the board, department of industrial policy and promotion (DIPP) and the secretariat for industrial assistance (SIA) about its investments within 30 days of funding the project.

Last week, the government had issued an instruction (Press Note 4) doing away with the FIPB approval for downstream investments. But, it was silent on the cases pending with the board.

A foreign-owned or controlled Indian company that either runs a business or runs a business and also invests in other companies down the line will no longer have to seek clearance, according to the press note.

Reports, meanwhile, said the department of economic affairs in the finance ministry had supported a proposal for share swap in Indian companies between foreign investors, subject to meeting SEBI's valuation guidelines and honouring tax liabilities involved in the transaction.

The report said the share-swap deals with foreign firms would facilitate merger and acquistion activity that has been hampered by a severe credit crunch.