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Govt opens FDI floodgates, allows pvt sector in defence

BS Economy Bureau

The Union Cabinet on Wednesday threw open the sheltered defence equipment industry to the private sector with a foreign direct investment limit of 26 per cent and significantly liberalised the FDI policy for crucial sectors, including banks, drugs and pharmaceuticals and some areas of telecom.

Union Parliamentary Affairs Minister Pramod Mahajan told reporters after the meeting that private sector companies will now be allowed to produce defence items after taking a licence from the government. He, however, added that the items to be covered were not decided as yet.

In the telecom sector, foreign direct investment limit has been raised to 74 per cent from the existing 49 per cent for Internet service providers with gateways, radio paging and end-to-end bandwidth services.

Mahajan said FIPB approval will be required for FDI in these areas and it will be subject to licensing and security requirements.

The relaxation of the FDI regime has been allowed in areas which needed urgent investments from offshore companies. Raising FDI in the sagging ISP sector from 49 per cent to 74 per cent will now enable large companies like America On-Line to go for further expansion.

Amitabh Singhal of the Internet Service Providers Association said, “Now we will be able to put up the kind of infrastructure required to offer world class Internet services with much more value added without any fund constraint.” Another impact would be on VSNL’s leadership as the numbers game hots up.

By raising the FDI in end-to-end bandwidth segment, the government has also clearly shown its intentions to build telecom infrastructure in the country.

End-to-end bandwidth providers are essentially Infrastructure Providers II licence holders who are involved in laying of optic fibre cables but do not actually provide telecom services. This includes major players like Reliance, Bharti, Railtel and PowerGrid who can now get more funds for their capital-intensive projects.

The government also increased the foreign investment limit in the banking sector from all sources to 49 per cent subject to Reserve Bank of India guidelines.

Earlier, investments by non-resident Indians were limited to 40 per cent and direct foreign investment to 20 per cent.

The government also decided that all investments made by NRIs in India in foreign exchange component would be fully repatriable in foreign exchange.

In the pharma sector, the government decided to allow 100 per cent FDI from the existing 74 per cent through the automatic route without any condition to offload a portion of investment in the domestic market. But, drugs produced under DNA technology are not covered.

Further, 100 per cent FDI has also been allowed in airports as against the existing 74 per cent, with 74 per cent through the automatic route and 26 per cent through the FIPB route.

The development of townships will also be able to attract 100 per cent FDI with FIPB approval against 74 per cent and the foreign investor will have to develop the infrastructure facilities surrounding the township. Mahajan said that urban development ministry will come out with the guidelines in this regard soon.

The FDI limit has been raised to 100 per cent for the hotel and tourism industry through the automatic route from the existing 51 per cent. There will be no stipulation on divestment in this sector, said Mahajan.

The 100 per cent FDI has also been allowed in two fresh areas -- courier services and Mass Rapid Transport System in all metropolitan cities.

Distribution of letters will not be covered in the courier services for FDI, said Mahajan. FDI in MRTS has been put under the automatic route and will also include necessary commercial development needs, he added.

Other decisions taken by the Cabinet on Wednesday include acceptance of the International Coffee Agreement 2001 and taking over of salt pan lands in Bombay.

Mahajan said that the Cabinet also discussed the Eradi Commission's suggestions on repeal of SICA and amendments in the Companies Act but no decision was taken.

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