The Government, on 30.07.2015, introduced composite caps on foreign investments in the country, so that uniformity and simplicity are brought across the sectors in Foreign Direct Investment (FDI) policy for attracting foreign investors. Composite cap is applicable across the sectors.

 With the introduction of composite caps foreign investment shall include all types of foreign investments, direct and indirect, regardless of whether the said investments have been made under Schedule 1 (FDI), 2 [Foreign Institutional Investor(FII)], 2A [Foreign Portfolio Investor(FPI)], 3 [Non-Resident Indian(NRI)], 6 [Foreign Venture Capital Investor(FVCI)], 8 [A Qualified Foreign Investor(QFI)], 9[Limited Liability Partnership (LLP)] and 10 [Depository Receipts(DRs)] of Foreign Exchange Management Act (FEMA) (Transfer or Issue of Security by Persons Resident Outside India) Regulations. Foreign Currency Convertible Bond (FCCBs) and DRs having underlying of instruments which can be issued under Schedule 5, being in the nature of debt, shall not be treated as foreign investment. However, any equity holding by a person resident outside India resulting from conversion of any debt instrument under any arrangement shall be reckoned as foreign investment. The measure is expected to bring clarity in FDI policy and boost foreign investment.

 As regards misuse of the FDI policy and the monitoring mechanism, it is mentioned that RBI monitors the foreign investment inflows and specific violations of FDI policy are investigated by Enforcement Directorate.

 This information was given by the Minister of State (Independent Charge) in the Ministry of Commerce & Industry Smt. Nirmala Sitharaman in a written reply in Lok Sabha today.

Composite cap on foreign investment extends FDI coverage to all forms of foreign inflows, with specified debt exceptions. The Composite cap aggregates all forms of foreign investment-direct and indirect-across FEMA investor categories for uniform sectoral treatment. Debt instruments such as Foreign Currency Convertible Bonds and certain depository receipts with debt underlying are excluded from foreign investment treatment, but any equity resulting from conversion of debt is reckoned as foreign investment. Regulatory monitoring of inflows is maintained and policy violations are subject to statutory investigation.