April 25, 2009

The notification of the new foreign direct investment (FDI) norms has run into trouble with the Finance Ministry raising questions on the new rules that have prompted several domestic firms to rework their ownership structure for attracting FDI in areas like retail through backdoor. In a related move, the Department of Industrial Policy and Promotion (DIPP), the nodal point for FDI guidelines, is examining the issues raised by the Finance Ministry.

“The Finance Ministry has raised some generic issues. We should be able to answer those questions and address them properly,” DIPP Joint Secretary Gopal Krishna told reporters on the sidelines of a function here on Friday.According to the new guidelines, if an Indian company with foreign equity of less than 50 per cent, invests in a firm it would not be considered as FDI.The DIPP in a further clarification stated that the sectoral cap would apply even to downstream investments but this advice was being ignored by several domestic firms.