The government on Tuesday clarified that Indian companies operating in sectors where foreign direct investment (FDI) is restricted can issue bonus shares to existing foreign shareholders, provided the overall shareholding pattern remains unchanged.
The Department for Promotion of Industry and Internal Trade (DPIIT) emphasized that such issuances must fully comply with all applicable laws and regulations. “The issuance of bonus shares must comply with the applicable rules, laws, regulations, and guidelines,” the DPIIT noted in a statement.
This clarification is now officially part of the FDI policy. With this move, companies in prohibited sectors such as lottery, gambling, chit funds, and tobacco product manufacturing can issue bonus shares to non-resident shareholders.
However, the key condition is that no fresh foreign investment should be introduced, and the shareholding percentages of both foreign and Indian investors must remain unchanged.
“An Indian company engaged in a sector or activity where FDI is prohibited is permitted to issue bonus shares to its pre-existing non-resident shareholders, provided the shareholding pattern of the non-resident shareholder remains unchanged following the issuance of bonus shares,” the DPIIT clarified.
“This clarification pertains to the permissibility of issuing bonus shares to existing foreign shareholders by Indian companies operating in sectors where FDI is prohibited,” it added. Most sectors in India allow FDI through the automatic route, where investors are only required to inform the Reserve Bank of India (RBI) after making an investment.
Under the government approval route, a foreign investor must obtain prior permission from the relevant ministry or department. In certain sectors like telecom, media, pharmaceuticals, and insurance, prior government approval is mandatory.
Some sensitive sectors, such as those mentioned above, do not permit any foreign investment. FDI is considered vital for India’s economic growth, particularly in infrastructure development. It also plays a key role in managing the country’s balance of payments and supporting the value of the Indian rupee. (With IANS Inputs)
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