New Delhi, Nov 13: A leading Indian industry lobby Sunday called for changes and clarification in the Foreign Currency Regulation Act (FCRA) on certain sections which, it said, hindered foreign capital inflow into the higher education segment.
According to the Confederation of Indian Industry (CII), the current laws hinder foreign direct investments (FDI) in universities as private players have to invest through a trust or Section 25 of the companies act.
‘For-profit entities are not allowed to get licences from the University Grants Commission as private universities under acts of different state governments,’ the CII said in a statement.
‘Since only a section 25 company can issue share capital, it is the most preferred medium for investment,’ the statement said.
The industry body said the FCRA Act comes into effect when FDI from venture capital and private equity firms or foreign shareholders come in the company.
CII said that while legal authorities and accounting firms say that investment in a section 25 company in exchange for a share subscription does not come under FCRA, most investors get sceptical as the legislation has harsh penal provisions.
‘To overcome this fear, a clarification (should) be made that FCRA is not applicable to investments made under automatic FDI in a section 25 company against equity subscription,’ the statement said.
The industry lobby further recommended that the Planning Commission include a clarification from the ministry of corporate affairs and the Securities and Exchange Board of India (SEBI), that a section 25 company can issue capital to the public in an initial public offering (IPO) or private placement.
‘That it (company) will not lose tax exemption and not-for-profit status just because shares are valued above par.’
The recommendations are part of the paper which CII had recently submitted to the Planning Commission which is in the process of creating the approach paper for the 12th plan.
CII added that the paper will be released at the CII’s first University-Industry Congress which is being held here Nov 14-15.