The fundamental principle emerging from the Press Notes is that so
long as an Indian company is `owned and
controlled' ultimately by resident
Indian citizens, investment by an
Indian company will not be counted towards FDI and will be able to
attract foreign capital to make downstream investment across sectors, even
those where FDI is currently either prohibited or
restricted. This is a significant shift from the existing FDI policy.
This is also in line with the acceptable principle under Foreign
Exchange Management Act, where a company, irrespective of the fact that it is
foreign or Indian-owned, is treated as an Indian company and enjoys all the
privileges of an Indian company.
DIPP has issued Press Note 4 of 2009 on
February 26, 2009 to provide clarity on approval requirements in
relation to the Indian company making downstream investments. The
guiding principle is that downstream investments by companies
`owned or controlled' by non-resident entities
would be required to follow the same norms as direct
investment—simply stated, what can be done directly can be
done indirectly under same norms.
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