New Delhi: Wary of the dampening business sentiment and the resultant reduction in investment inflow, the Central government is reconsidering the amendment made by the Department of Industrial Policy and Promotion (DIPP) that barred a foreign investor from selling back its equity in an Indian firm to its joint venture partner.

The move had invited severe criticism from foreign investors and Indian promoters.

Recently, DIPP under the Ministry of Industries and Commerce amended the norms of Foreign Direct Investment. After the amendment, an investor is required to follow the norms of External Commercial Borrowings to convert the equity procured through foreign investment.

In effect, if a foreign investor chooses to convert his equity to debt, it will be construed under the company’s External Commercial Borrowing (ECB) limit.

Sources said the government invited criticism from both the foreign investor and Indian promoters. Industry houses want to keep the norms for converting equity to debt out of the ECB ambit.

Following which, DIPP wants the RBI not to issue notification of the amendment made on September 30. For this, Ministry of Commerce and Ministry of Industries have started lobbying hard with the Finance Ministry.

However, the DIPP had amended the norms on the recommendation of the RBI. Meanwhile small and medium industries have expressed their apprehensions over the amendment.

If the new norms are implemented, the industry houses’ effort to procure resources by selling equities will fall flat.

Generally, the foreign investors make investment in the units having high potential of growth. They sell their shares after the company gets listed. In that situation the investors want an easy exit route. 

JPN/Bureau