THE Government of India had constituted a Committee for rationalising the definition of FDI and FII as per the announcement of the then Union Finance Minister during the Budget Speech 2013-14. The Committee has now submitted its report which has been accepted by the Government.
The core recommendation of the committee is that it should be the endeavour to simplify the classification of foreign investment and enable basically two classes of foreign investors in the long run viz. Portfolio Investors and FDI Investors, and at best carve outs therein for NRIs, in view of their special status.
The committee adopted the conceptual framework that Foreign Direct investment (FDI) is characterised by a lasting interest i.e. existence of a long term relationship, significant degree of influence. Normally, ownership of 10 percent or more of the ordinary shares OR voting power signifies this relationship and it involves both initial and subsequent transactions. On the other hand Portfolio Investment is characterised by the largely anonymous relationship between the issuers and holders, and the degree of trading liquidity in the instruments. Further it covers, but is not limited to securities traded on organized or other financial markets.
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