New Delhi, June 27: Grants and reinvested earnings of foreign companies could soon be considered as a part of foreign direct investment with the government making efforts to align its FDI definition with the IMF. Official sources told reporters here that a committee comprising the Reserve Bank of India and the industry ministry officials was examining this proposal and expected to submit its report soon. The committee set up recently has been given the mandate to recommend a new classification for FDI as the present statistics are considered understated and do not conform to IMF definition. Sources said based on the IMF model, grants given by a parent company in its Indian arm was likely to be considered as FDI. Also, profits earned by a subsidiary company, if re-invested in India, would form part of the FDI inflows since in the normal course they would be repatriated to the parent company abroad. In the past companies such as GE and Coca Cola have given grants to their Indian arm prior to their setting up full fledged operations in the country. However, these were never counted as part of the FDI inflows. Sources also said that overseas commercial borrowings could also form part of the FDI definition.
The underlying purpose of the ongoing exercise would be to ensure that companies divulge certain data for the purpose of being classified as FDI. Further, this data would be collected at a central point namely the RBI to ensure that FDI statistics are not understated.
Bureau Report