Right turn: FDI norms in key sectors eased

Written by Corporate Bureau | New Delhi, Jan 30 | Updated: Jan 31 2008, 06:13am hrs
In a major step to draw large-scale investment into critical sectors, the government revised the cap on FDI in critical sectors like aviation, petroleum & natural gas refining, commodity exchanges and a part of the financial sector on Wednesday. It also eased the norms for investment in industrial parks and mining of certain metals.

The last significant movement forward on FDI by the current administration was for the telecom sector in 2005, when the cap was raised to 74%. Relaxation of FDI caps by the UPA government has been delayed by strong opposition from some allies, most notably the left parties.

In the aviation sector, the omnibus air transport services category has been split to allow more play for FDI. The domestic scheduled passenger airline sector will remain capped at 49%, but for non-scheduled airlines, the FDI limit goes up to 74%, along with that for chartered airlines and cargo airlines. Foreign airlines will still not be allowed to come in through this route.

FDI in ground-handling services has also been hiked to 74% and placed on the automatic route, subject to sectoral regulations and security clearances. This will benefit new players like Nacil and private sector airport developers. NRI investment would be allowed up to 100% for these activities. Also, helicopter and seaplane services have been allowed 100% FDI. The sector is now dominated by public sector Pawan Hans.

The government is trying to woo global investors to pump much more than the $19.5 billion received in 2006-07 to boost infrastructure. China received $63 billion in the same period.

For the petroleum sector, minister for information & broadcasting Priyaranjan Dasmunsi told reporters after a meeting of the Union Cabinet that foreign companies planning a refinery venture with state-run oil companies would be allowed a stake as high as 49%, compared with the current 26%. But he added that there would be no disinvestment to alter the public sector nature of Indian companies.

In the financial sector, the Cabinet permitted up to 49% FDI in credit information bureaus, including 24% FII investment. However, the bureaus must be listed with a stock exchange. They would act as storehouses of financial information to help banks and insurance companies track the credit profiles of individuals and companies.

In the construction sector, FIIs registered under the portfolio investment scheme would now be treated as distinct from FDI. This has opened the route for higher FDI into the sector, as it would reduce the number of requisite approvals.