Big FDI push to skip retail

BUDGET SPECIAL

74% foreign investment cap in telecom likely, FDI in airlines may sail through.

The government is set to increase the foreign investment limit in the telecom sector to 74 per cent from 49 per cent now and allow foreign direct investment (FDI) in airlines, though opening up retail trading has fallen off its radar screen.

Finance Minister P Chidambaram is expected to discuss raising the FDI limit in the telecom sector with Commerce and Industry Minister Kamal Nath and Communications Minister Dayanidhi Maran shortly.

Retail: But the government is in no hurry to open retail trading for FDI. Finance ministry sources said since the opening up of the sector was unlikely to lead to a flood of FDI into the country, it had been kept on the backburner. "We do not want to stir a hornet's nest. It can be considered later," said a source.

Towards the end of its tenure, the National Democratic Alliance government had started talking about opening up the sector. The election manifesto of the Bharatiya Janata Party had even talked of allowing 24 per cent FDI in the sector.

Telecom: In April, the National Democratic Alliance government had prepared a Cabinet note to raise the FDI ceiling to 74 per cent in both fixed-line and mobile telephony along with full voting rights to foreign investors. But the issue could not be taken up due to the general elections in May.

While the cellular operators have for long been demanding an increase in the FDI limit to access funds and meet the investment needs of the sector, certain sections in the government have consistently been raising security concerns over the possibility of management control passing into foreign hands.

Aviation: The United Progressive Alliance (UPA) government is of the view that FDI will allow Indian airlines to consolidate their position. The present policy allows 40 per cent foreign investment in airlines but bars foreign airlines from picking up stakes.

However, the new FDI norms will come with conditions to ensure that international airlines do not have proxy control of the Indian entity. One of the safeguards that the government wants to put in is preventing international airlines from taking traffic away from India by diverting their hubs.

Besides, foreign airlines investing in India will be required to meet certain traffic commitments, including a minimum number of seats to India.

The proposed change could either be a part of the civil aviation policy under preparation or it could be a recommendation of the forthcoming Budget.

Government sources said the civil aviation ministry was consulting other ministries including home, external affairs, and finance for framing the policy.

FIPB: After a re-assessment of the role of the Foreign Investment Promotion Board, the minister appears to be convinced that there is no need for a body like the FIPB. "Over 90 per cent of the proposals being cleared by the FIPB related to transfer and gifting of shares. Except for Press Note 18, the FIPB is not involved in any policy decision, the source said.

The FIPB was essentially a secretariat, the sources said, and there was already a proposal to do away with the requirement of clearance for proposals relating to transfer or gift of shares.

The foreign investment guidelines have continuously been liberalised and there was no need for an FIPB-like approval mechanism, the sources said.