New Delhi, April 8 (PTI) government has clarified that an Indian company which is engaged in an area, where FDI is prohibited, can issue bonus shares to its already existing foreign shareholders, provided that there is no change in the shareholding pattern.
The department (DPIIT) said to promote the rules, laws, regulations and guidelines applied to issue bonus shares, to promote industry and internal trade.
According to DPIIT clarification, “An Indian company engaged in an area/activity prohibited for FDI (foreign direct investment) is allowed to issue bonus shares, provided that the shareholding pattern of the non -resident shareholder does not change to release the bonus stocks.”
It states that this explanation is in relation to permission to issue bonus shares to existing foreign shareholders by Indian companies engaged in prohibited areas for FDI.
FDIs in the country are allowed through automatic route in most areas, while in areas such as telecom, media, pharmaceuticals, and insurance, government approval is required for foreign investors. However, in some sensitive areas, foreign investment has also been banned.
Under the approval route of the government, a foreign investor has to be moved to the east of the concerned ministry or department, while under the automatic route, a foreign investor needs to be informed only to the Reserve Bank of India (RBI) after investing.
Currently, FDI is banned in some areas such as lottery, gambling and betting, chit funds, NIDHE company, real estate business, and cigar, Charutes, Cigarillos and cigarette manufacturing using tobacco.
FDI is important because India will need heavy investment to promote development in its infrastructure sector. Healthy foreign flows also help to maintain the balance of payment and the value of the rupee.