In a bid to streamline the FDI structure, the government on Thursday introduced a composite foreign investment cap by clubbing all forms of overseas investments to define sectoral limits.

Briefing reporters after the Cabinet meeting, Finance Minister Arun Jaitley said that “from now onwards, all FIIs, NRIs and other foreign investments… will be clubbed. It will be constituted as a composite cap”.

The proposal is aimed at simplification of FDI policy with a view to attracting foreign investments and also improving ease of doing business in India.

Under the existing policy, there are different caps for separate investment categories like FDI, FII and NRIs.

The proposal mooted by the Commerce and Industry Ministry would help remove ambiguity on application of sectoral caps, conditions and approval requirements in different sectors and simplify the foreign investment policy, sources said.

The ministry has proposed a composite foreign investment cap (FDI + FPI (FII, QFI) + NRI + FVCI) in sectors, including agriculture, tea, mining, broadcasting, media, airports, retail (single brand and multi-brand), e-commerce, asset reconstruction companies, banking, commodity exchanges and insurance.

The move, flagged by Jaitley in his budget in February, will make it easier for banks like Yes Bank and Axis Bank  to raise capital up to a foreign ownership limit of 74 per cent, say analysts.

“One of the most important decisions in relation to the investment is the introduction of composite caps for simplification of foreign direct investments,” Jaitley told reporters after a cabinet meeting.

Banking stocks rose after the announcement. Axis Bank shares rose nearly 5 per cent, while Yes Bank gained 3.6 per cent in a Mumbai market that was up 0.8 per cent.

Previously, foreign capital had been subject to varying restrictions – a legacy of India’s socialist past and its lingering reluctance to allow capital to move freely across its borders.

The Department of Industrial Policy and Promotion (DIPP), part of the Commerce Ministry, proposed simplifying the investment rules after Prime Minister Narendra Modi won an election last year by pledging to boost investment and jobs.

For banks, the shift will lead to an increase in their effective free float – or the number of shares that can be easily traded. That in turn would lead to an increase in their weighting in benchmark indexes tracked by many fund investors.

India has also allowed 100 per cent investment in pharmaceuticals and railway infrastructure under a so-called automatic route that does not require official approvals.

Sectoral foreign investment caps have been raised in the insurance and defence sectors to 49 per cent. No major deals have yet been announced, however, reflecting a lack of clarity over how India treats different types of capital. (Financial Express)