Commerce min favours 49% FDI cap on banks

100% foreign equity proposed in Venture Capital, Non-Banking Finance firms.

The commerce ministry has proposed binding the foreign direct investment limit in the banking sector at 49 per cent but favours allowing 100 per cent foreign equity in non-banking finance companies and venture capitals.

Officials told Business Standard that the proposal was likely to be taken up by the Cabinet next week and sent to the WTO in the first week of July as part of the revised services offer.

Officials said the "binding" in insurance, including life insurance, would be 26 per cent, while in telecom it would be 49 per cent. So far, India had not bound FDI limits in banking, insurance and telecom at the WTO.

Officials said the participation in issues of all kinds of securities, including underwriting and placement as agents (whether publicly or privately) by foreign financial service companies (including banks) under Mode 3 (or commercial presence), would be bound at a higher level. The foreign equity limit will be bound at 74 per cent from the present 51 per cent.

India will also allow foreign companies to set up 100 per cent wholly-owned hospitals. In education, they would be allowed to set up training centres or e-learning institutes, not schools or colleges, officials said.

The legal, retail and auditing sectors have not been included in the revised offer. India is also modifying its initial offers in architectural planning, veterinary services, research and development, construction and related engineering services, education and consult-ancy services.

Officials said India was offering sectoral commitments in Mode 3. It relates to allowing commercial presence of foreign companies in engineering, medicine, computer-related services and consultancy.

Member countries of the WTO were required to submit their revised proposals by May 31, 2005. So far, around 16 countries, including the US, the EU, Canada, New Zealand and Singapore, have submitted their offers on services.

The broad framework for the offer was considered by the Cabinet committee on WTO recently. The offer has been prepared after analysing the offers of the US and the EU.

Managing foreign money

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• Proposal likely to be taken up by Cabinet next week
• Binding for insurance suggested at 26%, telecom 49%
• Foreign equity limit to be raised to 74% from 51%
• So far 16 countries have submitted revised offers in services