Thursday, 4 April 2013

CII seeks changes in FCRA to spur investment in education

New Delhi: Industry chamber CII has made a pitch for changes in the Foreign Currency Regulation Act to alleviate investor apprehensions over some provisions so that greater FDI can flow into the higher education sector.
It has recommended that a clarification be made that FCRA is not applicable to investments made under automatic FDI in a Section 25 company against equity subscription.
At present, 100 percent foreign direct investment (FDI) is allowed in education.
For-profit entities are not allowed to get licences from the University Grants Commission. They are not allowed to function as private universities under the Acts of different state governments.
Hence, the investment vehicle is often a Society or a Trust or a Section 25 company.
Since only a Section 25 company can issue share capital, it is the most preferred medium for investment. Money flows into the operating ‘not-for-profit’ set up from an Indian corporate, or a fund in India or abroad, or from a foreign collaborator.
Wherever there is FDI, as is the case with most venture capital and private equity investments, or indirect in the sense that the investing company has foreign shareholders or has access to foreign funds, the FCRA Act comes into play.
While all legal authorities and accounting firms are of the opinion that investment in a Section 25 company, being in exchange for a share subscription, does not come under FCRA, investors are jittery since the FCRA legislation has harsh penal provisions, it added.
The CII recommendations form part of the paper which CII had recently submitted to the Planning Commission for inclusion in the 12th Plan (2012-17).

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