Govt to open FDI floodgates

Singapore based banks to have greater access in the Indian market; FDI limit raised.

The government is set to announce a series of policy measures ahead of the winter session of Parliament, including easier norms for the entry into India of banks registered in Singapore.

For banks registered in other countries, the government will soon issue guidelines allowing them to raise their investment in Indian banks by 10 per cent a year.

Singapore-based firms in the infrastructure sector will also be accorded tax benefits on a par with those in Mauritius under the double taxation avoidance agreement.

The government has also decided to grant identical treatment to Singapore-based companies, irrespective of their ownership. This means that companies with branches or subsidiaries in Singapore will be treated on a par with those owned by Singapore nationals.

Sources in the government said Prime Minister Manmohan Singh was also keen on raising the foreign investment limit in telecommunications from 49 per cent to 74 per cent.

"The revised norms will be issued soon since it is more of corporate lobbying than a political issue," said a source.

The amendments to the patents law, which were opposed by the Left parties, were also expected to be moved during the winter session to meet India's commitment to the World Trade Organisation (WTO), sources said.

The simplified norms for banking are to be announced along with the government's statement on the Comprehensive Economic Co-operation Agreement (CECA) with Singapore and the Association of South East Asian Nations (Asean). Singh will visit Laos next week to attend the Asean summit.

The decision to grant the concessions was taken at a meeting of the prime minister with Finance Minister P Chidambaram and Commerce and Industry Minister Kamal Nath last week. The Prime Minister also held a separate meeting with Nath today.

Sources said the decision to allow Singapore-based banks to invest in India was in line with the demands made during the CECA negotiations. Singapore had sought removal of the 10 per cent voting rights cap for foreign investors in private banks and permission to open more branches than the 12 committed by India to the WTO.

The move will help banks like DBS, which is backed by Temasek Holdings and is looking at expanding its operations across Asia.

India had so far held that the benefits of the trade agreement with Singapore should be limited to only companies established in Singapore and owned or controlled by Singapore nationals or Indian nationals having substantial business operations in Singapore.

"The move to do away with the nationality clause is aimed at signaling that India is serious about attracting investments and concluding bilateral trade agreements," said an official.

The Reserve Bank of India had expressed apprehensions about the entry of foreign banks since regulations are not strong in many countries.

The CECA includes an early harvest scheme that will be made operational from January 1, 2005, allowing zero-duty benefit to around 600 goods, including chemicals and computers. India will, however, maintain a negative list of 6,700 goods.

Wooing foreign money

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• Banks regulated in Singapore will have greater access to the Indian market through more branches and higher foreign investment limits
• Banks not registered in Singapore will be allowed to increase their investments in Indian entities through creeping acquisition
• Singapore infrastructure companies will also get tax benefits on a par with those in Mauritius under the Double Taxation Avoidance Agreement