In a move that could attract foreign investment in India (and could also help Congress attain some extra votes) the government yesterday announced some changes in FDI policy norms that effectively dilutes celing norms in many sectors like telecom, aviation and aviation.
The new norms state that management as well as economic control would be the defining criteria for determining whether or not a foreign holding was to be treated as FDI. In other words if a company was “ultimately” owned and controlled by resident Indian citizens, the foreign holding will not be taken into account for calculating the FDI ceiling. Hence a foreign company can buy into a target company up to the permitted ceiling and also take also take minority stakes in Indian companies which are stake holders in the target company thus exceeding the ceilings and still not be a violation.
However I believe that this is not a correct way to boost the economy, because the major problems India is facing today is because the so called FIIs have withdrawn a lot of what they have given us over the previous years. Hence there is no guarantee that the new rules which will bring in extra money into the system will be able to keep it. So it is again a temperoary solution and cant help markets sustain the up move.
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