January 3rd, 2012
03:41 AM GMT
(CNN) – India announced plans to allow foreigners to invest directly in domestic companies listed in one of the world’s fastest growing economies.
The government “decided to allow qualified foreign investors to directly invest in Indian equity market in order to widen the class of investors, attract more foreign funds, and reduce market volatility and to deepen the Indian capital market,” according to a New Year’s Day statement from India’s Finance Ministry.
Before only institutional investors and Indians living abroad were allowed to invest directly in local companies. The move will allow individuals to buy as much as 5% of a company’s shares. Total shares owned by foreigners, however, will not be able to exceed 10% of a company’s capital, the ministry said. The new rules are expected to take effect January 15.
While among the world’s fastest growing economies, India’s breakneck growth slowed in 2010, slipping to 6.9% in the quarter ending in September – it’s lowest growth rate in more than two years.
The nation’s airline industry – hammered by rising fuel costs and the sagging rupee, which fell 16% against the dollar last year – has been in crisis, renewing calls to allow foreign airlines to invest in Indian carriers. At present foreign institutional investors are allowed to acquire up to 49% in Indian carriers but foreign airlines are banned from investing directly or indirectly in domestic carriers.
“This would be an important change because investment by foreign airlines brings with it all kinds of advantages, not least expertise in airline management and other synergies,” Tom Ballantyne, the chief correspondent with Oriental Aviation, recently told CNN. “At the moment, however, in this sort of economic climate, the airlines are having trouble attracting any sort of investment at all.”
Officials hope lowering investment barriers on Indian domestic companies will boost India’s appeal as a foreign investment destination. India received less than $20 billion in foreign direct investment in the first six months of 2011, while China attracted three times as much during the same time period.
The Sensex, India’s benchmark index, fell 25% last year, making the bourse one of the world’s worst performing markets in 2011, according to the Financial Times.
About Global Exchange
Global Exchange explores how emerging markets are impacting and influencing the global financial community, at a time when business is a vital driver of the international news agenda.
Global Exchange is presented live from Abu Dhabi by emerging markets editor, John Defterios, who will be joined by CNN correspondents from around the world.
Global Exchange also includes the “GX20,” a global hotlist of some of the world’s biggest economic thinkers. The GX20 will be drawn from the key emerging markets, from across China, Russia, India and South Africa, contributing to the show and this blog.
Watch on CNN International Sunday to Thursday:
Follow the show on Twitter @CNNGlobalEx and use the #CNNGlobalEx hashtag to join the conversation.