The ministry has said that FIIs can invest in news channels and companies managing them, but the total foreign investment component will remain capped at 26 per cent. In effect, this means that FII investment has to be part of the total foreign investment allowed, including foreign direct investment.

An official in the I&B ministry said that it was a matter of interpretation, but since some clarifications were sought by media companies, the ministry has decided to remove the ambiguities.

The official also pointed out that it was only after this ambiguity was removed that NDTV got a clearance recently from the ministry for uplinking its proposed business channel from India.

On 10 December, 2004 NDTV had issued a notice to the Bombay Stock Exchange (BSE) stating that it has asked FIIs, NRIs and all persons resident outside India not to deal in its shares. Pointing out that the ministry of information and broadcasting had amended guidelines and foreign investment norms for news and current affairs news channels, the NDTV notice had said that Clause B prescribes that foreign direct investment (FDI) shall not exceed 26 per cent of the paid-up equity capital of the applicant company.

The FIIs issue, according to an earlier interpretation of the ministry, had sent some listed media companies like Television Eighteen Ltd, TV Today Network and NDTV LTD, scurrying to the government seeking clarifications.

It had been pointed out by the media companies that keeping a tab on FII investments in listed companies on a daily basis, where buying and selling happens on the markets, would be difficult and that the Companies Act allows FII investment in various sectors, subject to sectoral foreign investment caps.

Clause D of the guidelines states that while calculating the 26 per cent FDI in the equity of the applicant company, the foreign holding component, if any in the equity of the Indian shareholder companies of the applicant company, will be duly reckoned on a pro-rata basis, so as to arrive at the total foreign holding in the applicant company. Clause F states that it is obligatory on the part of the company to take prior permission from the MIB before effecting any alteration in the foreign shareholding patterns and the shareholding of the largest Indian shareholders.