Polls may stretch out FDI caps decision

The forthcoming General Elections are likely to take a toll on the decision to hike foreign direct investment (FDI) limits in key sectors including petroleum and aviation. A notification clarifying foreign investment rules in private banks is, however, on the cards.

According to government officials, the department of industrial policy and promotion (DIPP) will issue the necessary guidelines for foreign investment in private banks as Finance Minister Jaswant Singh had already committed himself to raising the FDI level to 74 per cent from the present 49 per cent at his maiden Budget speech.

The notification to permit 74 per cent FDI in the sector has been delayed since the finance ministry is working out the guidelines in the wake of objections raised by DIPP regarding the proposal to permit 100 per cent FDI in the sector.

At present, the government permits 49 per cent FDI in private banking, while foreign institutional investors are allowed to pick up another 49 per cent equity.

Officials said the government's opinion was that it could do without raising the level of foreign investment for the time being in the wake of healthy economic growth and foreign exchange reserves in excess of $ 100 billion.

"We can do without the increase for the time being since we have already permitted a high level of foreign investment across all sectors. Besides, changes on the procedural front are going to attract higher levels of investment than mere increase in caps," an official said.

The government recently increased the FDI cap in telecommunications from 49 per cent to 74 per cent to compensate cellular operators, following the decision to remove mobility restrictions on WLL operators.

The government was planning to raise FDI limits in civil aviation from 40 per cent to 49 per cent, allow 100 per cent FDI in scientific journals, besides permitting 100 per cent FDI in private oil refining ventures. Oil marketing and exploration can also take 100 per cent FDI, where the limit is at 74 per cent and 60 per cent, respectively.

The finance ministry had also cleared a proposal to raise FDI limit in the insurance sector, but in the absence of amendments to the Insurance Act 1938 the proposal could not be implemented.