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Government plans to pave way for smooth flow of FDI
June 26, 2007: The department of industrial policy and promotion (DIPP), the nodal arm for foreign investment policy is keen to allow 100% FDI in nuclear energy. As of now, FDI in nuclear energy is on the prohibited list. However, the government allows 74% FDI in exploration of atomic minerals and value-addition to these minerals.
While in the case of civil aviation, the DIPP plans to allow NRI investment to the tune of 100% in domestic airlines through the automatic route. Right now, such proposals require clearance from the Foreign Investment Promotion Board (FIPB). The government may also allow 100% FDI in ground handling and training facilities. The civil aviation sector is being taken up in a big way since traffic is booming and infrastructure constraints are growing. The FDI policy review is expected to clear the way for 100% FDI in cargo services, helicopter operations and sea plane services.
The foreign investment in scheduled airline services would remain at 49% and foreign airlines would not be allowed to pick up stake in domestic airlines. In the case of commodity exchanges, the government is likely to allow 26% FDI and 23% FII investment. The finance ministry has shown the green signal for this regime which will allow 49% foreign investment in this sector. A similar ceiling already exists in the case of stock exchanges.
For the petroleum sector, the government plans to relax the mandatory divestment condition which requires foreign investors to dilute their stake over a period of time. A similar relaxation is expected in the case of some other sectors too. The government also plans to introduce more flexibility in Press Note 1 by exempting sectors like hospitality and advertising. This move will make it mandatory to obtain a no-objection certificate from local partners in case a foreign investor seeks to launch another venture in the same field of activity.
The government plans to carry out a comprehensive review of FDI policy every year to enhance the flow of investments. Though actual inflow of FDI has been increasing, it is felt India has a long way to go before catching up with other rapidly-growing economies like South Africa and China.
Source: The Economic Times