ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Foreign Direct Investment Caps in India and Corporate Control Mechanisms

While India has generally been following an open door policy in foreign direct investment, a few areas are still subject to caps on fdi. The need to retain a degree of control over the operations of the investee companies in Indian hands is one of the justifications for the caps. In early 2010, the government specified the methodology for calculating indirect foreign equity in order to remove ambiguities in calculating the extent of fdi in a company. This paper argues that the percentage of shares or proportion of directors on the board does not necessarily represent the extent of control and therefore more direct intervention would be required if the policy objectives are to be achieved.

SPECIAL ARTICLE

Foreign Direct Investment Caps in India and Corporate Control Mechanisms

K S Chalapati Rao, Biswajit Dhar

While India has generally been following an open door policy in foreign direct investment, a few areas are still subject to caps on FDI. The need to retain a degree of control over the operations of the investee companies in Indian hands is one of the justifications for the caps. In early 2010, the government specified the methodology for calculating indirect foreign equity in order to remove ambiguities in calculating the extent of FDI in a company. This paper argues that the percentage of shares or proportion of directors on the board does not necessarily represent the extent of control and therefore more direct intervention would be required if the policy objectives are to be achieved.

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