The Telegraph
Since 1st March, 1999
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Govt plans easy FDI rule for mines

New Delhi, July 1: Foreign mining companies are likely to get the government’s approval to acquire up to 49 per cent stake in captive iron and coal mines in the country.

The government, which is reviewing its foreign direct investment policy, also plans to raise caps in select sectors such as air cargo, ground handling, helicopter services and mineral exploration.

Though there are no rules barring companies such as Rio Tinto or BHP from investing in mining, a lack of clarity has stalled joint ventures in steel and power.

In its upcoming review, the government is likely to clear the doubts on this issue.

Present norms allow foreign-owned steel companies such as Posco and ArcelorMittal to hold a 100 per cent stake in captive coal and iron ore blocks. The foreign mining companies will, however, get only a minority stake.

“Commerce minister Kamal Nath is keen on allowing this investment. If cleared by a group of ministers, it will be taken up by the cabinet,” said officials. The government is unlikely to allow FDI in retail and further opening up in insurance because of objections by Left parties.

An approval is likely for a higher investment in air cargo, seaplane, charter airline and helicopter businesses. The limit in these segments may be raised to 74 per cent from 49 per cent.

Civil aviation minister Praful Patel wants the rules for non-passenger airline businesses to be relaxed. He is opposed to major changes in norms for passenger airlines.

The rules bar not only majority foreign equity but also direct or indirect ownership of stake.

There is also a move to hike FDI in commodity exchanges, with RBI stipulations for stock exchanges the likely model.

Foreign investors are allowed to hold 49 per cent in stock exchanges, with the limit for a single entity at 5 per cent.

The government will also decide on the participation of foreign institutional investors (FIIs) in commodity trading.

Several political parties and farmer groups are opposed to the entry of FIIs because they fear a repeat of last year’s artificial rise in commodity prices.

The officials said the government would follow “abundant caution” in preparing a policy.

Initially, the participation of mutual funds and FIIs will be restricted to trading in bullion, metals and crude.

If there are no adverse consequences, the FIIs be allowed in commodity trading.

In petroleum, the government may take up the norm that makes it mandatory for foreign companies to divest 26 per cent of their stake within five years in India.

A recent change has allowed foreign companies to take up to 49 per cent stake in PSU refineries.

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