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Move on FDI to remove hurdles, says govt

The Indian government has clarified that its recent decisions to promote foreign direct investment, or FDI, were aimed at removing bottlenecks and securing additional investments to the tune of $ 10 billion a year in infrastructure to sustain high economic growth.

The decisions are in line with the President's address to the joint session of Parliament on October 25, 1995 stating that the government would review the existing FDI regime to remove hurdles and put FDI clearances on an automatic route, an official statement said.

Following the interim report submitted by the group of ministers, or GoM, which was reviewing the existing sectoral policies and sectoral equity, the cabinet at its meeting on June 12 decided to allow 100 per cent FDI for e-commerce. This would be subject to the condition that such companies would divest 26 per cent of their equity in favour of the Indian public in five years, if these companies were listed in other parts of the world.

Further, these companies would engage only in business-to-business e-commerce and not in retail trading implying, inter alia, that existing restrictions on FDI in domestic trading would be applicable to e-commerce as well.

The condition of dividend balancing on specified consumer goods with effect from the date of issue of the statement may be removed. This would be subject to the condition that the export obligation and the concomitant dividend balancing would be applicable till the date of withdrawal of the condition.

Any upper limit for FDI in respect of projects relating to power generation, transmission and distribution (other than atomic reactor power plants) may be removed, it was clarified.

Levels of FDI in refining under automatic route may be enhanced from 49 per cent to 100 per cent.

As far as e-commerce is concerned, it would be seen that existing restrictions on FDI in domestic trading would be applicable to e-commerce as well. Further, it is mandatory for companies to divest 26 per cent of their equity in favour of the Indian public in 5 years.

The decision on removal of the condition of dividend balancing was taken in the background that while the foreign exchange outflow on account of dividend is not very significant, this condition is often perceived by the foreign investors as restrictive and thus inhibits FDI.

As regards the power sector, 100 per cent foreign equity investment subject to FIPB/CCEA approval, was allowed in 1991. The FDI regime was further liberalised in 1997 and 1998, when the automatic approval route for FDI was allowed subject to an equity cap of Rs 15 billion. Since no substantial investment was coming the power sector creating a growing demand-supply gap for power in the country, the equity cap of Rs 15 billion has now been removed.

The decision on increasing the level of FDI in the oil refining sector emanates from the recommendations of the working group on India Hydrocarbon Vision-2025 and in view of the desirability of deregulating the sector. However, given the present refining capacity in the country as well as the number of projects under implementation which are expected to add to the domestic capacity, there is little likelihood of FDI in the sector for a number of years.

UNI

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