The government is likely to let foreign investors subscribe to warrants and partly paid-up shares issued by companies as part of a move to speed up approvals and facilitate faster flow of overseas funds into the economy.

Government officials told TOI that the move, which has been in the pipeline, was being fast-tracked at a time when the government has opened several sectors, including multi-brand retail and civil aviation, to greater foreign participation. Simultaneously, it is working on speeding up clearances, often an area of concern for investors, especially foreign players.

Currently, subscribing to warrants and partly-paid shares requires approval from the Foreign Investment Promotion Board (FIPB). An official said the finance ministry was discussing issues related to new instruments as part of the revamp plan. 

Over the years, the norms have been simplified to the extent that the government has allowed issue of shares for consideration other than cash. For instance, foreign companies have been permitted to subscribe to shares of Indian firms in return for machinery exported by them. Warrants are securities that give the subscriber an option to convert them into shares on a specified date and at a fixed price. Typically, warrants are priced higher than the prevailing market price at the time of issue. Companies such as HDFC have in the past issued warrants to investors.

Similarly, in case of partly-paid shares, as the name suggests, the subscriber only pays a part of the value and is called upon the pay the rest later. Although the security was initially used extensively by overseas banking and insurance companies, several privatization schemes in developed countries relied on partly-paid shares.

Warrants and partly-paid up shares accounted for 18% of all cases cleared by FIPB in 2010, the latest period for which data is available on the agency's website.

By putting the two segments on the automatic route, the government will not just unclog the system but also allow companies to merely issue the securities and inform RBI within a specified period of time. The move will also help lower the transaction cost for the corporate sector.

The moves come at a time when FDI inflows have been on the decline. After the big picture moves, the government is focusing its attention to iron out glitches, which are holding back investments. A finance ministry official said there were several outdated rules which sometimes acted as obstacles. The move is part of the wider drive to attract foreign investment flows.

The government has made it clear that it needs foreign investment to help get the wheels of the economy moving again. (Times of India)