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India - Regulatory Changes In 2007
March 2008 | India Practice | Regional | Regional Reports
The following is a brief summary of the major 2007 regulatory changes in India which would be of interest to foreign investors.
The Government introduced a Limited Liability Par tnership ("LLP") Bill to set up the long awaited LLPs in India, which is proposed to be a hybrid between partnerships and companies under existing laws. The Bill has not been passed yet.
Foreign Direct Investment ("FDI") of up to 26% and Foreign Institutional Investor ("FII") investment of up to 23% by foreign infrastructure companies were allowed in the securities market. FDI was allowed through Foreign Investment Promotion Board (FIPB) approval whereas FII was allowed through purchases in the secondary market.
The Union Human Resource Ministry on 6 February 2007 proposed 100% FDI for higher education.
The government introduced a Foreign Contribution Regulation Bill to regulate the acceptance and utilisation of foreign contribution and foreign hospitality. The Bill when passed will affect the numerous voluntary organisations operating in India and being foreign funded.
FDI in the telecommunication sector was increased from 49% to 74% on 3 November 2005. However, the government reviewed the policy and introduced certain conditions for FDI in the sector wide Press Note 3 of 2007 dated 19 April 2007.
The monetary regulator of India, RBI, introduced comprehensive guidelines on derivatives. The RBI thereby allowed banks and primary dealers to trade in rupee interest rate derivatives only.
With a view to providing greater flexibility to corporates in managing their liquidity and interest costs dynamically, RBI had increased the existing limit for prepayment of External Commercial Borrowing ("ECB") from US$300 million to US$400 million. Later during the year, the limit of US$400 million was further revised to US$500 million.
Revised guidelines for investment in preference shares were issued which envisaged that fully convertible preference shares would be treated as part of share capital for the purposes of sectoral caps. Any other type of preference shares would be treated as part of debt and shall conform to the ECB guidelines.
Preparations for the new Companies Act are in the final stages and the Bill is to be introduced soon in parliament.
The term Single Brand has been defined for FDI of up to 51% in Single Brand retailing as follows: -
a. Products to be sold should be of Single Brand only.
b. Products should be sold under the same brand internationally.
c. Single Brand product retailing would cover products which are branded during manufacturing.
