| Big-ticket changes to Foreign Direct Investment (FDI) norms approved by the Union Cabinet today are likely to increase investment inflows from foreign firms and increase the presence of foreign airlines, aircraft manufacturers and oil-refining companies. |
| The much-awaited review of the FDI policy comes after nearly two years. A decision on the policy changes, anchored by the Department of Industrial Policy and Promotion, was postponed by the Union cabinet six times since last year. |
| The commerce and industry ministry has set a target of $25 billion for FDI inflows for 2007-08. Government data shows that in 2006-07 FDI inflows stood at $16 billion, a significant increase of 175.86 per cent over $5.8 billion a year ago. Between August 1991 and September 2007 India has received FDI worth $60 billion. |
| However, while liberalising a number of sectors further (see table), the government avoided opening up multi-brand retail for foreign investment and did not relax FDI norms for domestic passenger airlines from the current 49 per cent. |
| Government officials said today's policy relaxation will encourage investment from foreign companies that have been waiting for policy clarity before taking the plunge "" credit information companies (which rates individuals) being a key example. |
| "Many companies, like credit rating company Crisil, are waiting to enter the sector but could not get a licence from the Reserve Bank of India. Today's decision will mean that companies that have been waiting for clarity in policy will now come to India with their investments," said the official. |
| One key implication of relaxing FDI norms in titanium-bearing minerals (which are widely used in aircraft construction) and its value addition is that aircraft manufacturers like Boeing or Airbus can now invest in the sector. |
| Under offsets obligations applicable to the civil aviation sector, foreign aircraft manufacturers that sell aircraft to Indian government-owned carrier, may invest in the titanium mining to fulfill these obligations. |
| Today's decision is also likely to boost manufacturing as the Cabinet relaxed the restrictive conditions of Press Note 2 of 2005 on industrial parks, which put conditions like minimum capitalisation, lock-in period and the minimum development area. |
| The Cabinet also de-linked FDI provisions on foreign institutional investors (FII) in real estate, which will not only provide clarity to prospective investors in the sector, but also increase in the stock market play of companies like DLF, Unitech and Parsvnath that already have foreign portfolio investments. |
| TAKING OFF (Key changes in FDI policy) |
| CONSTRUCTION DEVELOPMENT PROJECTS: To issue clarification that investments by registered FIIs under the Portfolio Investment Scheme would be distinct from FDI and outside the purview of Press Note 2 (2005) conditions |
| CIVIL AVIATION: Continues with existing FDI cap at 49% and 100% for NRIs; Foreign airlines to be allowed FDI in cargo carriers. FDI up to 74%, for non-scheduled airlines, chartered airlines and cargo airlines; NRI investment to be allowed up to 100% on the automatic route; FDI up to 74% for ground-handling, FDI up to 100% for maintenance and repair organisations, flying training institutes, technical training institutions, and helicopter services/seaplane services |
| PETROLEUM & NATURAL GAS: Deletes the condition of compulsory divestment of up to 26% equity in favour of Indian partner(s)/public within 5 years for actual trading and marketing of petroleum products; Increases equity cap from 26% to 49% in petroleum refining by public sector units |
| COMMODITY EXCHANGES: Allows FDI up to 26% and FII up to 23% in commodity exchanges, subject to no single investor holding more than 5% |
| CREDIT INFORMATION COS: Allows foreign investment up to 49% in credit information companies, subject to specific approval of government and RBI clearance, FII investment up to 24% only in CICs listed on stock exchanges, within overall limit; Deletes 'Credit Reference Agencies' from the list of NBFC activities permitted for FDI up to 100% |
| FDI IN MINING: Allows FDI up to 100% with prior government approval in mining and mineral separation of titanium-bearing minerals and ores, its value addition and integrated activities |
| INDUSTRIAL PARKS: Clarifications will be issued that provisions of Press Note 2 (2005) would not apply to industrial parks |
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