News: FDI recast may ease sector ceilings and entry rules

(DNA 08/05/2007) Mumbai - The foreign direct investment (FDI) regime is in for a comprehensive review over the next few weeks. The review will encompass existing sectoral FDI caps and entry routes with a view to liberalising them. This will be in addition to clearly defining "direct" and "indirect" stakes to maintain the sanctity of FDI sectoral caps, as has been recommended by the Foreign Investment Promotion Board (FIPB) in the wake of the controversy over the status of certain shareholdings in Hutchison Essar. The department of industrial policy and promotion (DIPP) is being encouraged to take a more comprehensive look at the FDI policy and procedures following Prime Minister Manmohan Singh's congratulatory message to commerce and industry minister Kamal Nath last week for the country's high FDI inflows. The country achieved a record $19 billion in FDI inflows ($ 15 billion in fresh equity and $4 billion in retained profits) in 2006-07. FDI inflows had stagnated around $5 billion in the previous years. The FDI review will cover a broad spectrum of sectors such as telecom, coal mining and processing, petroleum, aviation, plantations and media, where there are sectoral caps and entry conditions. In several areas where sectoral caps have been prescribed, investors are also required to go through the FIPB clearance route rather than the automatic one. "There is scope to take a fresh look at the existing sectoral FDI caps and other conditions attached to entry to make the FDI regime even more attractive and hassle-free for investors", an official said. "Further liberalisation can be attempted in a number of areas. Many of these are politically do-able at this juncture", he said. The review will stay clear of the politically controversial areas such as the opening up of retail trade to FDI or raising the FDI cap in insurance from 26per cent to 49per cent. The latter requires amendments to the Insurance Act, and involves utilising a lot of political capital, which the lead partner in the UPA coalition does not have. Opening up the retail sector will depend on the results of a study ordered by the government on the impact of allowing MNC and big corporate houses into the sector.