Emphasising the need of higher Foreign Direct Investment (FDI) to meet the increased need of Infrastructure projects, the Finance Minister in his latest Budget stated that the Union Government is planning to take series of steps to simplify the FDI regime. As a first step, all FDI guidelines issued thus far will be compiled into one document.

The finance minister further stated that for the first time, both ownership and control have been recognised as central to the FDI policy, and methodology for calculation of indirect foreign investment in Indian companies have been clearly defined. A consistent policy on downstream investment has also been formulated. Another major initiative has been the complete liberalisation of pricing and payment of technology transfer fee, trademark, and brand name and royalty payments. These payments can now be made under the automatic route.

In January 2010, the Union Ministry of Commerce and Industry, had released a draft document that consolidated foreign investment policy notified so far through 177 Press Notes by the Department of Industrial Policy and Promotion (DIPP), and various circulars by Reserve Bank of India, into a single regulatory framework. The new FDI policy is all set to be unveiled on 31 March 2010.

Steady growth in the current fiscal

In the current fiscal, India has seen steady growth in the FDI inflows. In December 2009, FDI inflows in India stood at $1,542 million (approx Rs 7,185 crore), an over 13 per cent increase from about $1,362 million (approx Rs 6,265 crore) received in December 2008.

On a cumulative basis, FDI inflows during the first nine months of the current fiscal have been $20,921 million (approx Rs 1,00,539 crore), slightly lower than the $21,153 million (approx Rs 92,326 crore) of inflows recorded in the corresponding period of the preceding fiscal.

Sectoral break-up of FDI inflows for April-December period indicate that the services sector (financial and non-financial services) attracted around $3,547 million (approx Rs 17,074 crore), and telecom another $2,359 million (approx Rs 11,442 crore). During the same period, housing and real estate raked in FDI inflows of nearly $2,383 million (approx Rs 11,472 crore), while $2,218 million (approx Rs 10,543 crore) were channelised towards construction activities. Among the other sectors, power and automobile sectors accounted for FDI inflows of about $1,258 million (approx Rs 6,088 crore), and $976 million (approx Rs 4,696 crore), respectively.

FDI Clearances

The Union Finance Ministry, on 22 February 2010, approved 12 FDI proposals worth over Rs 1,045.61 crore.

Soma Highways (Toll) Projects' proposal for induction of foreign investment of Rs 360 crore, and Max India's FDI proposal worth Rs 529 crore got cleared. The government has also cleared Mothercare UK's Rs 25 crore plan in the area of single brand retail and of Darjeeling Organic Tea Estates' Rs 84 crore plan to undertake the production, distribution and export of tea.

During February 2010, the government deferred 11 and rejected 7 proposals. The deferred proposals include Essar Capital Holdings, Verizon Communications, Star India Holding, and Etisalat DB Telecom. Similarly, seven FDI proposals, including that of Shinsung Petrochemical Company, Global Vectra Helicorp and TCL India Holding, have reportedly been rejected.

Other Developments

The government has doubled the ceiling for automatic foreign investment from Rs 600 crore to Rs 1,200 crore to give a further fillip to the FDI inflows into the country.

The government has initiated the process of restricting fresh foreign investment in the tobacco sector. The DIPP is preparing a note for interministerial consultations on the issue.

The proposed ban is likely to halt the Japan Tobacco's proposal to invest $100 million (approx Rs 460 crore) into its Indian subsidiary JTI India. Its proposal has been long pending with the FIPB. The Union Ministry of Health had earlier objected to Japan Tobacco's proposal.