Government defers FDI policy review

New Delhi, Dec 10: The Government has deferred review of policy on foreign direct investment(FDI) even as it talked of short-term challanges of managing capital inflows without endangering the growth and price stability.

After the last comprehensive review of FDI policy in January 2006, the Union Commerce and Industry had recently prepared a note suggesting another comprehensive review of the policy in civil aviation, petroleum and natural gas, mining and credit information companies.

The government has also initiated the process of reviewing the existing FDI norms in broadcast sector, following the recommendation for a holistic review made by Telecom Regulatory Authority of India (TRAI).

The note prepared for the Cabinet Committee on Econimic Affairs has suggested increasing foreign investment caps in various sectors.

It has proposed FDI up to 74 per cent in non-scheduled airlines, chartered airlines and for cargo airlines. In the petroleum and natural gas sector, the policy proposes to delete the condition of compulsory divestment of up to 26 per cent equity within five years for actual trading and marketing of petroleum products. Besides, it has also proposed an increase in the foreign equity cap from 26 per cent to 49 per cent with prior FIPB approval in petroleum refining by public sector undertakings.

However, Civil Aviation Minister Praful Patel has ruled out permission for foreign airlines to invest in domestic carriers. Last week, he said hike in FDI beyond the existing 49 per cent is also unlikely now.

''The Indian avitation sector is at a nascent stage. We don't want to be soft target of the bigger airlines,'' Mr Patel said after speaking at the India Economic summit here on December 4.

In credit information companies(CICs), the note proposed that FDI up to 49 per cent may be allowed subject to approval of the government and regulatory clearance from the Reserve Bank. It also recommended foreign institutional investment (FII) of up to 24 per cent in those CICs which are listed on stock exchanges within the overall limit of 49 per cent for foreign investment.

At the same time it said no single entity should be allowed to hold more than 10 per cent equity directly or indirectly.

The review has proposed up to 100 per cent FDI with prior government approval in mining and mineral separation of titanium bearing minerals and ores with a rider that investor set up value addition facilities in India along with transfer of technology.

The government is already seized of a new mineral policy and a Group of Ministers (GoM) headed by Home Minister Shivraj Patil is making an indepth examination of the issue in view of objections raised by mineral-rich states like Orissa, Rajasthan, Bihar, Chhatisgarh and Jharkhand.

The Chief Ministers of these states have sought a meeting with the Prime Minister to have their say in chalking out the national mineral policy. Opposition MPs from these states had forced adjournment of Lok Sabha during the winter session demanding consultation by the Central govenment with the concerned state government.

On review of FDI norms in broadcast sector, Information and Broadcasting Minister informed Lok Sabha that the government has initiated the process with the concerned ministries based on the TRAI's recommendations. TRAI has recommended that 74 per cent FDI be allowed across segements to bring it at par with the telecom sector.

The current policy permits 49 per cent FDI in cable services,20 per cent in FM radio, 26 per cent in TV news broadcasting and 74 per cent in telecom. While 49 per cent foreign investment is allowed in direct-to-home (DTH) segment, only 20 per cent can be direct foreign holding, the rest being FII investment.

Internet service providers (ISPs) and non-news TV broadcasters are, however, allowed 100 per cent FDI. TRAI has also recommended 74 per cent FDI for head-end in the sky (HITS) - a satellite-based system to distribute television signals via cable. This system has yet to arrive in India. Hundred per cent FDI for for services downlinking general and entertainment channels delivered from outside India is also allowed.

It remains to be seen if the government will go ahead with the suggested FDI policy review now that the mid-year review has sounded caution against rising capital inflows. It said ''increased capital inflows can impact macroeconomic aggregates through exchange rate, trade and monetary variables.'' The incoming funds are thought to have driven up the rupee, which has led to loss of thousands of jobs due to lost export orders, particularly in the textile sector, which employs 25 million people.

Last year, India received FDI of 15.7 billion dollar and the flow in first six months of current fiscal from April to September was 7.2 billion dollar, a growth of 65 per cent over the comparable period of 2006-07, according to Commerce and Industry Minister Kamal Nath.

UNI