Temasek, GIC to up investment

Temasek and Singapore General Investment Corporation (GIC) will soon be able to invest 20 per cent in Indian companies against the present ceiling of 10 per cent.

Senior government officials told Business Standard that the decision would be part of the India-Singapore Comprehensive Economic Cooperation Agreement (CECA) to be signed shortly.

The government has, under CECA, agreed to treat them as two distinct entities and allow them to invest 10 per cent each as foreign institutional investors in a company, against the prevailing practice of putting them in one block.

Singapore had been pushing New Delhi to treat them as separate entities as their structures were different.

"They are like Indian public sector banks and we do not club the holdings of two banks because they are majority-owned by the government," said an official.

Officials told Business Standard that the decision was expected to help take the CECA with Singapore ahead. Singapore has been seeking a relaxation of the foreign investment norms in telecom and further liberalisation in the financial services sector.

While India was willing to accede to some demands of Singapore such as, allowing banks from Singapore to open 15 branches in five years, it was reluctant to agree to the demand of excluding the clause "subject to domestic laws and regulations" while binding the FDI cap in telecom to 74 per cent.

"We want to include the clause to ensure that we have flexibility available in making policy decisions and have the option to reduce the ceiling, if required, at a later date," an official said.

The CECA, which was expected to become operational from May 1, 2005, has also been delayed over the issue of extending benefits to juridical persons, which has been hanging fire for some time.

Singapore wants the juridical persons clause to include all those who have established businesses in that country, Besides , Singapore wants entities controlled by foreigners to enjoy CECA benefits.

India is opposing this on the ground that benefits of the CECA should only be enjoyed by juridical persons established in Singapore and entities owned or controlled by Singapore nationals or Indian nationals.

Singapore has by and large accepted India's formulation on rules of origin "" transformation at four-digit classification and value addition of 40 per cent "" coupled with flexibility from this principle on a large number of tariff lines. Under the CECA India would extend tariff concessions on around 2000 items accounting for 80 per cent of its trade.

Efforts to initiate a Double Avoidance Taxation Agreement with Singapore have also hit a roadblock on account of Singapore's reluctance to include an information sharing clause in the agreement.

India has offered a DTAA to Singapore on the lines of the Mauritius DTAA.Senior government officials told Business Standard that though Singapore was keen on the DTAA, it did not want inclusion of the information sharing clause, something which is included in the Mauritius DTAA.