On Eve Of Budget, FDI Caps Up

New Delhi, February 27: | Updated: Feb 28 2003, 05:30am hrs
The group of ministers (GoM) on foreign direct investment (FDI), headed by finance minister Jaswant Singh, has approved increase in foreign investment caps on telecom, civil aviation, petroleum refining, exploration and marketing and printing of technical magazines. The GoM, however, refrained from taking a decision on insurance, banking, non-banking finance companies (NBFCs) and small-scale industry (SSI) sector.

The GoM is expected to send these recommendations to the Cabinet shortly. These recommendations are based on the NK Singh committee report on foreign direct investment.

In its meeting on Thursday, the GoM recommended an increase in investment limit in basic and mobile telephony to 74 per cent. This, however, will be subject to security clearance. Also the proposals will have to be approved by the foreign investment promotion board (FIPB). The security guidelines will be issued by the telecommunications ministry in consultation with other ministries.

According to government sources, the GoM has expressed the view that the management control in case of telephone companies should be in proportion to the equity held. The GoM has overruled the objections of the administrative ministry in this regard. The administrative ministry wanted the management control to rest with Indian shareholders. The GoM felt that the management control was a security issue and since the approvals were subject to security clearances, there was no resaon to deny voting rights, sources said and added that this step will bring in upfront investments instead of pyramiding them through holding companies.

The GoM has also recommnded raising FDI cap to 100 per cent for Internet Service Providers (ISPs) without gateways under the automatic route. However, this will be subject to condition of divesting 26 per cent over a period of five years even in cases where the company is listed somewhere else.

In case of radiopaging services, the GoM suggested that the FDI cap of 74 per cent should be retained as there is not enough demand.

In the civil aviation sector, 100 per cent FDI through automatic route has been recommended in airport projects on the city side. The GoM has also recommended hiking FDI in domestic civil aviation to 49 per cent. Again overturning the administrative ministry, the GoM has recommended that this applies to investment by foreign airlines in domestic airlines subject to security clearences. The civil aviation ministry had recommended that foreign airlines should not be to allowed to invest in domestic airlines.

Government sources pointed out that forign airlines have the expertise of running the business and therefore this relaxation has been recommended.

In case of petro refining, the GoM has recommended lifting of the 26 per cent FDI cap on PSU refinery companies to bring them at par with private refiners where 100 per cent is already allowed. The hike in FDI in state-run petro refiners would be left to the discretion of respective companies, sources said.

In the oil marketing sector, the present cap of 74 per cent has been enhanced to 100 per cent through the automatic route subject to necessary authorisation by the government. However, the existing conditions like Rs 2,000-crore investment in oil infrastructure would continue.

In case of pipeline projects for transporting petroproducts, the GoM suggested increasing the cap to 100 per cent from the present 51 per cent. However, pipelines for natural gas and LNG transportation would continue to be regulated by FIPB as the government is yet to come up with a guideline. In non-news print media, FDI up to 1OO per cent under automatic route has been recommended. Sources pointed out that this will not be limited only to Special Economic Zones (SEZs) but will be applicable across the country.

The GoM was attended by petroleum minister Ram Naik, power minister Anant Geethe, telecom minister Arun Shourie, civil aviation minister Shahnawaz Hussain, small-scale industry minister C P Thakur, information and broadcasting minister Ravi Shankar Prasad and commerce minister Arun Jaitley.