The move, aimed to promote ease of doing business in India, was announced by Finance Minister Arun Jaitley in the budget last month.
"We have attempted to incorporate suggestions by various departments and ministries. Investors want clarity in policies for safety of their investments. The aim is to attract foreign investment by clearing ambiguity in the existing FDI policy related to sectoral caps and conditionality," said a government official.
The composite foreign investment caps will encompass all types of foreign investments. These will include foreign portfolio investment, NRI investment and depository receipts, and will include foreign currency convertible bonds and fully and mandatorily convertible preference shares or debentures.
FDI inflows through the approval route shot up 162% to $1.91 billion in the first 10 months of the current fiscal, compared to the yearago period, which could be attributed to the relaxation of FDI norms and measures taken by the Narendra Modi government to enhance ease of doing business.
During 2013-14, India had received $1.18 billion FDI through the government approval route. "To further simplify the procedures for Indian companies to attract foreign investments, I propose to do away with the distinction between different types of foreign investments, especially between foreign portfolio investments and foreign direct investments, and replace them with composite caps," Jaitley had said while presenting the budget for 2015-16.
DIPP had floated the note for interministerial consultation last year but met with resistance from certain ministries including the departments of pharmaceuticals and economic affairs. Composite cap is already applicable in sectors including defence, telecom and insurance.
"The move will be significant for sectors that have a sectoral cap. It will bring in a lot more clarity on how the cap is to be calculated. The companies should know how much room they have to bring in foreign investment," said a sector expert, who did not want to be identified.
India is ranked a poor 142 out of 189 countries in the World Bank's doing business index. The government is aiming to break into the top 50 in the next two years.