Centre in move to expand FDI route

The government is in favour of removing all entry level conditions for units which were set up in pre-economic liberalisation era and expand the foreign direct investment route.

A note, prepared by the department of economic affairs, ministry of finance, for consideration of the core group of Foreign Investment Promotion Board proposes to make available the benefits of a liberalised dispensation to all units.

At a parallel development, the government is also planning to open up the automatic route for FDI to foreign financial and technical collaborators which have existing joint ventures.

Going by the present norms, automatic route for FDI is not available to those who have any previous joint venture or technology transfer and trade-mark organisation in India when they look for fresh investments and set up new joint ventures in the same area.

This is being done to safeguard the interest of the Indian partners. The players are required to seek the FIPB approval giving details of the new joint ventures.

The government feels that the existing provisions are "unduly restrictive and ... coming in the way of greater FDI Inflow into country".

It said: "Arrangements between JVs are a purely commercial matter and there is hardly any rationale for the state to get into the nuances of disputes between joint venture partners which ought to be resolved in the form of the courts or through arbitrations."

On the units set up in the pre-liberalisation ear, the note said: "It is both illogical and iniquitous that as FDI policies get liberalised, the benefits of such liberalisation are not made available to units that were set up earlier when a more restrictive regime was in place."

There have been several instances in the recent past when foreign currency approvals seeking deletion of certain conditions imposed at the time of granting initial approval in accordance with the then prevailing FDI policy have been opposed.

"The finance minister desired that a consistent view be taken in all such cases where liberalised policy dispensation is available and accordingly directed that necessary direction of the Cabinet may be obtained without delay," the note stated.

In its meeting on July 4, 2003, FIPB exempted JP Morgan International Finance from the mandatory 26 per cent divestment clause with regard to its Indian subsidiary - JP Morgan Securities India Pvt Ltd. This followed the progressive liberalisation in FDI norms.

It might be recalled that in 1998, FIPB had inserted the 26 per cent mandatory divestment clause for global companies in the non-banking financial sector.

While this clause was done away with in 2001, the rule applied only to those global entities that set up shop in the country subsequently.

The FIPB has also asked the ministry of urban development to look into the anomalies that exist in the housing sector so far as FDI is concerned.

Even as 100 per cent FDI is permitted and non-resident Indians are permitted to make 100 per cent investment in the development of integrated townships, various proposals seeking FIPB approval have been rejected.

The explanation given was that these are not permitted under the extant FDI policy in the sector. The rejected proposals included those relating to construction and contracts of commercial infrastructure projects on turnkey basis and residential projects on contract basis.

The ministry of urban development has thus been asked to specify which areas could be covered under the heading "integrated township development."