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One step closer to unlocking FDI floodgates

New Delhi, Feb. 27: The group of ministers (GoM) today recommended relaxing foreign direct investment (FDI) limits in petroleum, telecommunications, information and broadcasting and aviation sectors.

It has suggested the removal of 26 per cent cap on foreign equity holding in state-run refiners, increasing the FDI ceiling in telecom sector from 49 to 74 per cent and from 40 to 49 per cent in airlines. In addition, it gave a controversial permission to foreign airlines to buy into domestic airways.

Civil aviation minister Shahnawaz Hussein opposed moves to allow foreign airlines to buy stakes in domestic airlines, because of which it was decided not to place permission for such ventures on the automatic route but to allow these to be vetted by the Foreign Investment Promotion Board and by security agencies.

Sources said he also opposed indiscriminate opening up of airports to foreign equity and wanted checks and balances to be put in place. Foreign firms can invest up to 100 per cent in airport infrastructure through the FIPB route or up to 74 per cent without the board’s permission.

Privately-run airlines in India welcomed the move. The biggest of them Jet Airways, which has for long been shrugging off allegations of foreign funding, refused to make any comment. Siddhant Sharma, chief executive of Royal Airways, a new NRI-owned airlines which plans to start operations this October, said: “We welcome the move by the GoM.”

The GoM headed by finance minister Jaswant Singh today held a meeting to consider the recommendations of the Steering Committee, constituted by the Planning Commission in August 2001. “These recommendations, taken after discussion with the respective ministries, will now be placed to the Cabinet for its approval,” sources said.

“The sectoral caps and the route of investment whether through the automatic or FIPB was also discussed. However, FDI cap on the banking or the small scale industry sector was not considered,” he said.

The official said that foreign airlines will be allowed to hold 49 per cent in domestic airlines. “This will require FIPB permission and security clearances,” he said.

The GoM today allowed 100 per cent FDI through the automatic route for oil marketing firms. “But this is subject to government policy and authorisation as the case may be,” said the official.

He said that 100 per cent foreign holding has been allowed for firms into oil exploration, petro-product pipelines and transportation of oil and natural gas. “While FDI for petro product pipelines will be through automatic route, for the transporation firms it will be through the FIPB.”

However, foreign firms have been reluctant to invest in refineries in India and are keen on entering the lucrative marketing segment. Kuwait Petroleum Corp and Oman Oil are two foreign firms which had backed out of the proposed refinery ventures.

Foreign companies that already have sizable investments in the Indian oil and gas sector or those which propose to make such investments have been allowed to bid earlier for IBP and now Hindustan Petroleum Corporation Ltd (HPCL). Shell was the only foreign firm which had earlier bid for IBP and is now in the race for HPCL.

GoM has accepted the committee’s recommendations on higher foreign holding in basic and mobile telecom firms. “But, this will also be subject to security clearance,” he said. “The department of telecommunications will issue a detailed guidelines in consultation with the home ministry.”

Internet service providers without gateways have been allowed to set up wholly-owned units, but will have to divest 26 per cent equity over a five year period. “There has been no official communication to us but it is a good decision,” said Sunil Bharti Mittal, Bharti group chairman.

“Indian telecom firms had faced this problem of not being able to generate resources to expand operations. But this will improve the financial conditions of various firms,” he said.

Telecom Equipment Manufacturers Association president Narendra Kumar Goyal said: “Telecom manufacturing firms will be benefited by this move. It will also help in meeting competition from the Chinese telecom equipment manufacturers.”

T. V. Ramachandran, director general of the Cellular Operators Association of India, said: “We welcome this step to raise the FDI in telecom sector. It is essential for the huge investment required to meet the teledensity objective of the nations.”

Amitabh Singhal, secretary general, Internet Service Providers Association of India, said: “We have been demanding for long for unlimited FDI. This will give more confidence to promoters.”

HFCL group chairman Mahendra Nahata said: “This is a good move, and will benefit the telecom sector.”

The GoM also allowed 100 per cent foreign investments in firms (under the special economic zones) for printing of scientific and technical magazines from the current 74 per cent level.

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