In August, the Union Ministry of Commerce and Industry announced a number of policy decisions to increase the inflows of foreign direct investment (FDI) into India. To nullify the fear of opposition parties that only urban areas within India have benefited from FDI, the ministry asked NCAER to conduct a study on the impact of FDI.

Setting aside its earlier decision to introduce an umbrella legislation to screen FDI, the commerce ministry decided to draw up some vetting guidelines within the existing legal framework, such as the FDI policy or FEMA. The new screening criteria once formulated will also be made part of the FIPB screening norms and the RBI guidelines.

With the intent to attract around USD2 billion in the mining sector, the Union government decided to permit companies to seamlessly move between mining, exploration and prospecting for minerals. This means that companies bringing FDI into one of these areas would be able to invest in the other two areas, without having to obtain separate licenses from government. However, the changes will not be applicable for companies operating in sectors like coal and atomic minerals.

The Centre also reviewed its FDI policy for the coal sector, and decided to allow foreign equity up to 100 per cent for exploration or mining of coal and lignite that are used as raw materials for captive consumption by iron, steel and cement manufacturers. This is an extension to the earlier order by the government in 2005 that permitted 100 per cent foreign investment in an Indian subsidiary of a foreign company or in an Indian company, to set up coal-processing plants. In another development, the Union government reduced the FDI limit in internet services from 100 per cent to 74 per cent, and introduced a 6 per cent revenue share clause. In its internet service policy unveiled on 25 August 2007, it also introduced a higher entry fee of Rs.20 lakh for category A (national-level) license and Rs.10 lakh for Category B (state-level) license, against a flat fee of Re. 1 earlier. It has done away with the Category C (local-level) license altogether.

All ISPs are now permitted to offer internet telephony services against the earlier policy that required a separate license for it. However, the new policy continues to bar ISPs from terminating internet telephony calls on landlines or mobiles within India.

According to the Union Commerce and Industry Minister, Kamal Nath, the country received USD 4.9 billion in the first quarter of 2006-07, indicating a whopping increase of 185 per cent from USD1.7 billion received in the first quarter of the previous year. The minister is confident that the country would receive FDI to the tune of USD25-30 billion during the entire fiscal 2006-07.

The minister also informed that the ongoing review of the FDI policies would be completed by end-September 2007, and the government intends to remove the procedural anomalies and open up new areas, excluding the retail sector.

In August 2007, the Union Ministry of Finance cleared 37 FDI proposals in two installments. On 03 August 2007, the Ministry cleared 17 proposals worth Rs.575 crore. The Rs.235 crore proposal of Human Value Developers Pvt. Ltd. was the largest proposal cleared. The company was engaged in the business of stock broking along with providing various financial products and services. The second largest proposal to be cleared was that of MTV India Pvt. Ltd. The company intends to invest Rs.202 crore in securing advertisement for and distribution of, its channels on various platforms including cable and DTH.

On 19 August 2007, the Ministry approved 20 proposals envisaging FDI of Rs.1,078 crore. The proposals included Mauritius-based Blackstone GPV Capital Partners who intend to bring in Rs.447.20 crore into an operating-cum-holding company-SKR BPO services, and make further downstream investment.

Recent developments indicate the intentions of the Union government to raise FDI levels within oil & petroleum marketing and in a few civil aviation services. FDI upto 100 per cent is expected to be allowed in oil and petroleum marketing companies. At present, if a foreign company sets up an oil marketing company, it is required to divest 26 per cent in favour of an Indian partner, within five years. The upper limit of FDI is expected to be raised from the existing 49 per cent to 74 per cent, in helicopter services, non-scheduled aircrafts and regional airlines.