Finance Minister Jaswant Singh has proposed the easing of overseas investment norms. This will make overseas acquisitions by Indian companies easier.
Industry experts expect Indian companies to announce big-ticket acquisitions during the months as an outcome of the proposed changes.
The minister said that companies with a proven track record would be allowed to make acquisitions abroad in non-related areas also.
Further, the 50 per cent of net worth ceiling on a company's investment in acquiring shares in an overseas company has been raised to 100 per cent.
In addition, the minister has also raised the annual ceiling of $100 million on pre-payment of external commercial borrowings. The liberalisation is clearly prompted by the country's burgeoning foreign exchange reserves of over $75 billion.
"This is nothing but another step towards capital account convertibility. We have seen a host of measures in the recent months in this direction because of the rising reserves," Mukesh Butani, head (global tax advisory solutions), Ernst & Young, said.
The proposals are widely expected to benefit information technology and pharmaceutical companies, which are scouting for growth opportunities abroad.
For IT companies, the removal of the ceiling of 50 per cent of net worth on investments in overseas acquisitions is important as stock deals are not taking place.
In fact, the handful of overseas deals announced by Indian companies have been all-cash deals. Companies need the flexibility to pump more money into such acquisitions.
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