Centre Clarifies Rules On Issue Of Bonus shares To Existing Foreign Investors

The government on Tuesday clarified that Indian companies operating in sectors where FDI is prohibited can issue bonus shares to existing foreign shareholders—provided the shareholding pattern remains unchanged.

According to the Department for Promotion of Industry and Internal Trade, such issuance must comply with all applicable laws and regulations.

The clarification, now part of the official FDI policy, confirms that companies in prohibited sectors can allot bonus shares to non-resident shareholders without breaching FDI restrictions, as long as no new foreign investment is introduced and ownership proportions stay the same.

FDI in the country is allowed through the automatic route in most of the sectors, while in areas such as telecom, media, pharmaceuticals and insurance, government approval is required for foreign investors. However, in some sensitive sectors, overseas investments are also banned.

Under the government approval route, a foreign investor has to take prior nod of the ministry or department concerned whereas under the automatic route, an overseas investor is only required to inform the Reserve Bank of India (RBI) after the investment is made.

At present, FDI is prohibited in certain sectors such as lottery, gambling and betting, chit funds, nidhi company, real estate business, and manufacturing of cigars, cheroots, cigarillos and cigarettes using tobacco.

FDI is important as India would require huge investments in the coming years for its infrastructure sector to boost growth. Healthy foreign inflows also help in maintaining the balance of payments and the value of the rupee.

(With inputs from PTI)