The Telegraph
Since 1st March, 1999
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FDI cap off in oil, at 74% in private banks

New Delhi, Jan. 15: In another pre-poll gambit designed to increase the flow of foreign investments into the country, the BJP-led government today raised the limit on foreign direct investment (FDI) in banking to 74 per cent and permitted 100 per cent foreign stake in petroleum sector ventures. The government also permitted 100 per cent FDI in companies that print technical journals.

However, the decision on the proposals to raise the foreign investment limit in telecom and civil aviation sectors have been deferred.

Parliamentary affairs minister Sushma Swaraj said the FDI limit in private banks has been raised to 74 per cent from 49 per cent at present. This ceiling will include portfolio investment by foreign institutional investors (FIIs) and non-resident Indians. However, foreign investors will be subject to a mandatory credit rating and will have to obtain RBI clearance.

However, private banks that are in the insurance business will not be allowed to breach the 26 per cent ceiling set for the insurance sector and will be subject to the norms of the Insurance Regulatory and Development Authority (IRDA).

Several banks have been hawking the products of insurance companies through their large network of branches to maximise their earnings.

The government also said that approval from the Foreign Investment Promotion Board (FIPB) would be required in cases where the foreign investor has a collaboration with an Indian company and wants to take over the latter's share.

In the area of scientific and technical journals, the foreign investment cap has been raised to 100 per cent from the existing 74 per cent. In the case of oil marketing, the cap has been raised to 100 per cent from 74 per cent at present and it would be done through the automatic route.

Asked about the proposal to raise foreign investment ceiling from 49 per cent to 74 per cent in the telecom sector, she said the issue had been deferred but refused to say why. Sources disclose that the decision to defer the opening up of these two sectors has been taken on the basis of inputs provided by the intelligence bureau and the proposals were being redrafted to take care of these security concerns.

In the petroleum sector, the FDI ceiling has been raised to 100 per cent in the downstream marketing segment from 74 per cent at present. It has also been increased to 100 per cent for investments in oil refineries, petroleum product and gas pipelines and unincorporated and incorporated joint ventures in the area of oil exploration.

Approval in all these areas will now come through the automatic route instead of the present system of clearance from the FIPB. However, in the case of natural gas pipelines, the investment will have to be cleared by the FIPB. Swaraj said foreign investment in the public sector oil and gas companies will continue to be capped at 26 per cent.

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