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Govt Works on Policies to Attract More Overseas Investments
Friday, March 13, 2009

Companies in sectors with foreign direct investment (FDI) limits could soon be exempted from taking prior approvals for participation by foreign funds in their share issues, as per new rules being considered by the government to attract more overseas investments. A committee of top government officials will soon consider a proposal that seeks to explicitly do away with the Foreign Investment Promotion Board's (FIPB) approval for investments by foreign institutional investors (FIIs) in public offers of companies that operate in sectors with such FDI limits, a government official said.

The proposal, mooted by the Department of Industrial Policy and Promotion (DIPP), is likely to be taken up by the committee of secretaries shortly, said the commerce and industry ministry official, who asked not to be named. This move will remove all ambiguity in the policy over whether FIPB permission is needed for such investments and could benefit companies in sectors such as singlebrand retail, aviation and telecom, all of which have strict foreign investment limits. At present, the government's foreign investment policies are silent on whether such investments need FIPB approval, but companies as a practice take its approval for their public offers due to lack of clarity.

Recently, Oil India and National Hydel Power Corporation sought FIPB approval for raising foreign capital in their planned initial public offerings, though both the oil and power sectors come under the automatic route where such approvals are not needed. "There is a lack of uniformity and clarity in the existing policy as far as treatment of FII investments vis-à-vis constituents of a sectoral cap is concerned," the official said. The secretaries' panel will also consider a separate proposal to just prescribe a single composite cap on foreign investment, doing away with sub-limits on portfolio investments by foreign funds and FDI. Sectors such as commodity exchanges, credit information companies, stock exchanges and direct-to-home broadcasters have sub-caps for FDI and portfolio holdings by foreign funds.

If approved, foreign investment in a company could be through any route so long as it remained within the stipulated composite ceiling. The committee of secretaries will also consider proposals for easing various restrictions for foreign investment in the real estate and aviation sectors. The proposal for aviation includes allowing up to 49% FDI in aviation through the automatic route. For real estate, the restrictions mainly pertain to minimum area and capitalisation requirements. The proposal will seek to reduce the minimum area criteria to 10,000 square meters for commercial developments and 10 acres for residential projects.



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