Govt to relax FDI norms

The government of India proposes to ease the norms for foreign direct investment approval.

At present, projects worth more than Rs 600 crore (Rs 6 billion) require the final approval of the Cabinet Committee on Economic Affairs.

The department of industrial policy and promotion has proposed that this ceiling be raised to anywhere between Rs 1,000 crore (Rs 10 billion) and Rs 1,500 crore (Rs 15 billion).

The new norms are likely to be notified after the introduction of a consolidated FDI policy framework on April 1 this year. Projects below the threshold would get their final approval from the finance minister after they have been cleared by the Foreign Investment Promotion Board. 

According to the current norms, any FDI infusion, irrespective of its size, into projects worth above Rs 600 crore requires a formal clearance from CCEA after it passes through FIPB under the ministry of finance. This is mandated in Press Note 7.

Senior DIPP officials told Business Standard that it was in favour of raising the threshold to augment greater FDI inflows into the country and minimise the role of CCEA.

"The proposal has been in works for some time, but we plan to introduce it when the consolidated FDI policy framework comes into effect and we receive stakeholders' views," said a senior DIPP official.

Once notified, the move is expected to benefit companies across all verticals from telecom, retail, airlines, banking and financial services that view India as one of the prime investment destinations. He added that the government was not planning to review the FDI ceiling for any sector.

Even as FDI inflow has been rising since 2000, it still does not play a significant role in capital formation, according to a recent report by the Organization for Economic Cooperation and Development.

The latest move is part of the policy measures aimed at smooth FDI flow into the country.

Last month, Commerce and Industry Minister Anand Sharma unveiled a draft consolidation of the FDI policy. It aimed to bring greater clarity by replacing all 177 press notes outlining the guidelines and making it investor-friendly. The draft guidelines were released for stakeholders' consultation till January 31.

It would be finalised by March 31. The new policy would then be subjected to inter-ministerial review after every six months.

FDI inflows increased to $27 billion in 2008-09 from $3.2 billion in 2004-05. During the period April-September 2009-10, FDI inflows reached $15 billion. The government has set a target of achieving $50 billion annual FDI by 2012 and $100 billion by 2017.