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FII in retail could go to 49%
Posted On: 24-01-2014 04:10:48 AM

The Indian government in September 2012 allowed 51% Foreign Direct Investment (FDI) in multi-brand retail companies without carving out any separate ceiling for Financial Institutional Investment (FII). The present sectoral limit for overall FII investment in Indian companies is 24%. Now the committee headed by economic affairs secretary Arvind Mayaram has recommended 49% foreign investment through the automatic route in all sectors except defence, insurance and media. It has suggested a composite sectoral cap for foreign investors, doing away with separate caps for FDI and foreign institutional investment (FIIs).

If the recommendations are accepted by the government, it will not only help domestic retailers, but also open an additional window to the Indian retail sector for foreign portfolio investors. As per an article in Mint, Future Retail wrote to the finance ministry last year seeking permission to raise its portfolio investment limit to 49%. The finance ministry had sent the proposal to the Department of Industrial Policy and Promotion to take a view on the matter. Future Retail, in its letter to the finance ministry wrote that allowing domestic retail companies to raise portfolio limit to 49% would provide a “level playing field to domestic retail companies like ours … Since overall participation of FII is restricted to limit of 49% as approved by the board and shareholders of the company, the company continues to be Indian as owned and controlled by Indian resident shareholders.”

Future Retail had 20.89% FII investment as of December, down from 21.48% as of September. While Indian companies can raise the FII holding in them beyond 24% to reach the permitted sectoral cap through board approval or a special resolution approved by shareholders, lack of clarity about the foreign investment policy on multi-brand retail has deterred companies such as Future Retail from raising the FII holding in them beyond 24%. Intrinsically the retail company is more interested in raising portfolio investments from the market than attracting FDI because FDI restricts its reach only to states that allow foreign investment in multi-brand retail and may come in the way of its pan-India ambitions.

 
 
 

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