India Further Liberalizes FDI Policy, Drops Mandatory Lock-In Period

The Indian government is loosening its foreign direct investment regulations and is now allowing foreign investors the opportunity to repatriate their original investment before the expiration of a three-year lock-in period from the day it completes its minimum capitalization norm for the sector.

While the Department of Industrial Policy and Promotion has expressed misgivings about the policy change, the government has contended that this restriction can be done away with if the investor offers an acceptable reason for not making the investment.

By lending foreign investors a potential exit route before the three-year lock-in period expires, India hopes to encourage foreign investors whose projects have not gone forward due to the fear of minor hiccups such as questions over the environment or the inability to acquire the requisite land in the earmarked area.

Under India’s FDI policy, companies in many sectors have to bring in a minimum amount of capital as a condition for clearance.

In a sector like township that permits 100 percent FDI under the automatic route, foreign companies have to bring in US$10 million in a 100 percent subsidiary and US$5 million in a joint venture as minimum capitalization.

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