After a gap of nearly two years, the Union government announced liberalisation of foreign direct investment (FDI) limits in some key sectors. The Aviation sector is the major beneficiary of this present liberalisation measure. Other sectors that stand to gain are Petroleum Refinery, Industrial Parks, Titanium Mining, Credit Rating Services and Commodity Exchanges.

In the Aviation sector, FDI upto 74 per cent is now allowed for foreign airlines in non-scheduled airlines, chartered airlines, cargo airlines and ground handling facilities. Within the same areas NRIs are allowed to bring in 100 per cent equity on the automatic route. Foreign airlines are allowed 100 per cent FDI in repair organisations, flying institutes, technical training institutions and helicopter services / seaplane services. The FDI allowed for Mining and Mineral separation of titanium bearing minerals and ores is now up to 100 per cent. These minerals are widely used in aircraft construction.

In the Petroleum & Natural Gas sector, the government has deleted the previous compulsion of divestment up to 26 per cent equity in favour of Indian partners / public within five years of commencement of petroleum products marketing.

On the other hand, the FDI limit has been raised for the Petroleum Refining projects of the public sector units, from 26 per cent to 49 per cent. This move is expected to expedite some of the Greenfield refineries proposed by PSUs in the recent past.

In a major move, the government has clarified that FII investment in construction companies will not be treated as FDI, and such investments will be outside the purview of Press Note 2 (2005) conditions. Similarly, the Press Note conditions will not apply to Industrial parks.

Conceding to the long standing demands, the Union government has allowed 49 per cent FDI in credit information companies subject to prior approvals from the Government and the RBI. However, FIIs have been allowed to invest only up to 24 per cent and so also only within the listed credit information companies.

Further, FDI up to 26 per cent and FII investment up to 23 per cent (subject to a upper cap of 5 per cent for single investor) has been allowed in Commodity Exchanges. The new measures are expected to invite higher FDI inflows during the coming years. During the current year, until October 2007, India attracted $15.7 billion of FDI. In the current fiscal the country is expected to attract around $ 25 billion of FDI.

The government also took a decision during the month, to allow FDI from Bangladesh. This move is expected to help the Tatas in acquiring clearance from the Bangladesh government to invest $3 billion investment in Power, Steel and Fertiliser sectors within Bangladesh.

FDI Clearance

During the month, the Union Finance Ministry cleared 34 FDI proposals which will see inflows worth Rs.2,288.40 crore during the coming months. Amongst these proposals cleared by the ministry, Global Asset Holding Corporation's Rs.580 crore proposal was the largest. The company has chalked out major investment plans in the telecom sector. The UTV Software Communication's Rs.400 crore foreign currency convertible bonds (FCCB) issue and a proposal by Cyprus-based Lakecrest Ltd for conversion of its operating company into a holding firm, were the other major proposals to receive approvals from the Finance Ministry.