The finance ministry has blocked a proposal from the department of industrial policy and promotion (DIPP) to allow foreign institutional investors (FII) to invest over and above the sectoral caps on foreign investment. FII stake should not be taken into consideration while calculating FDI in sectors, for example telecom, which have a foreign investment cap, the department had suggested.
Several other departments also have reservations on the issue which is snowballing into a controversy, government sources said. Already, there are varying opinions over differences between FDI and portfolio investments, especially in a sector like real estate.
The proposal has huge implications for the telecom sector, stock exchanges, commodity exchanges, asset reconstruction companies and broadcasting, to name a few. In the telecom sector, overall FDI cap of 74% includes FDI, FII, and NRI stake, while in the asset reconstruction sector only FDI is permitted. In different segments of broadcasting, foreign investment limits include both FDI and FII.
The home, defence and external affairs ministries have reservations on allowing FII investment over and above FDI, government sources said. This could lead to a demand for hiking the foreign investment cap in sectors like telecom and stock exchanges, it is felt. It is learnt that national security advisor M K Narayanan also does not favour such a move. These ministries have demanded that the proposal should be shelved. The resistance has stalled the proposal from progressing further.
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