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New Guidelines for FDI Miss out on the Real Estate Sector
Thursday, March 13, 2008

The government on Wednesday issued guidelines on big-ticket changes to the foreign direct investment norms in the country that were approved by the Union Cabinet on January 30. It, however, remained silent on clarifying a change in norms for FDI in real estate, possibly due to fear of greater capital inflows.

Government sources said the clarification was not mentioned in the minutes of the Cabinet meeting sent to the Department of Industrial Policy and Promotion recently. As a consequence, a press note could not be issued. "It is not clear why the Cabinet has not cleared the proposal to de-link FDI and FII norms (in real estate)," said the official.

Interestingly, on the day the Cabinet met to approve the changes, a plain-paper background note distributed by the government said the Cabinet had approved a clarification that FII investments would be distinct from FDI and be outside the purview of press note 2 (2005).

The de-linking provisions were proposed by the DIPP. The DIPP issued six different press notes (policy notifications by the government) covering civil aviation and petroleum and gas, besides a few other sectors but missed out the real estate sector.

The Press Notes Issued so far

The first press note of the 2008 series deals with guidelines for allowing 49 per cent FDI in credit information companies and taking out credit reference agencies from the list of the NBFC activities where FDI is allowed.

The second press note deals with guidelines allowing FDI up to 26 per cent and FII up to 23 per cent in commodity exchanges, subject to no single investor holding more than 5 per cent.

The third press note in the series is on doing away with the limiting conditions of press note 2 of 2005 on industrial parks.

The fourth press note is on the relaxation of the FDI cap in the civil aviation sector, which includes 74 per cent FDI in non-scheduled airlines, chartered airlines and cargo airlines, 100 per cent FDI in maintenance and repair organizations, flying training institutes, technical training institutions, and helicopter services/seaplane services.

The fifth press note is on rationalization of the FDI policy in the petroleum and natural gas sector.

The new guidelines do away with the condition of compulsory divestment of up to 26 per cent equity in favor of Indian partner(s)/public within five years for actual trading and marketing of petroleum products as well as increases equity cap from 26 per cent to 49 per cent in petroleum refining by public sector units.

The sixth press note specifies guidelines allowing FDI up to 100 per cent (with prior government approval) in mining and mineral separation of titanium-bearing minerals and ores, its value addition, and integrated activities.



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