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New Delhi, Feb 2 
Banking, civil aviation, telecom, power, mining and tourism figure in the array of sectors where the government has decided to cut a deep swathe through a forest of restrictions by granting automatic approvals to foreign direct investment (FDI) proposals.

Giving details of the Cabinet’s landmark decision on Tuesday, industry minister Murasoli Maran said the cap on investment had been raised in eight sectors with the added benefit of automatic approval. These are drugs and pharmaceuticals where the sectoral cap has been raised to 74 per cent from 50 per cent, tourism (50 per cent from zero), mining and prospecting (74 per cent from 50 per cent), and exploration and mining of coal and lignite (50 per cent from zero).

Besides, investments up to 100 per cent will now be allowed through the automatic route in films and pollution control and management against zero earlier.

In advertising, the sectoral cap for the automatic route would be 74 per cent (zero earlier). The investment cap for prospecting of gold, diamond and precious metals has been raised to 100 per cent from 50 per cent. 

“The decision represents a major step towards dispensing with the present mechanism of considering proposals on a case-by-case basis and will lend greater transparency to the processing of FDI flows into India and inspire confidence in the foreign investors,” Maran said.

Henceforth, foreign investment in all sectors will be allowed through the automatic route provided they fulfil two vital conditions. First, the proposal is within the overall sectoral cap and, second, it does not attract any of the criteria mentioned in the negative list. For instance, there is a 40 per cent cap on foreign equity in the banking sector. A foreign entity can now set up shop in India after securing the requisite approval from the Reserve Bank of India and does not have to be first screened by the Foreign Investment Promotion Board. However, it would have to make a declaration that it does not attract any of the clauses in the negative list.

All proposals for investment in public sector units as also for export-oriented units, export processing zones, electronic hardware technology park, and software technology park units will qualify for automatic approval subject to certain conditions. 

“The FIPB will gradually wither away,” Maran said since the government’s intention is to continuously review and liberalise the FDI regime.

The small negative list will cover those proposals that require: i) an industrial licence under the Industries (Development and Regulation) Act, 1951; ii) wherever foreign investment tops 24 per cent in the equity capital of units manufacturing items for the SSI sector, iii) all items which require an industrial licence in terms of the locational policy notified by government under the New Industrial Policy of 1991; iv) all proposals in which the foreign collaborator has a previous venture/tieup in India; v) all proposals relating to acquisition of shares in an existing Indian company in favour of a foreign/NRI/OCB investor; and vi)all proposals falling outside the sectoral caps or if an investor chooses to make an application to the FIPB and not avail the automatic route.

While the decision is a first step towards dismantling FIPB, analysts say nearly 20-30 per cent of FDI at present is through the acquisition route which is now under the negative list.

Proposal for multiple ventures in the same sector would have to be routed through the FIPB. For example, in the area of banking, a company planning to diversify its operations into other sectors like asset management or NBFCs would have to seek an FIPB approval. 

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