The Union Government is mulling over a proposal to set up a new oversight body to ensure that companies with foreign holdings will not invest in sectors in which FDI is currently prohibited. The prohibited sectors include multibrand retail, gambling, betting, lottery, atomic energy and plantation.

The proposed oversight body will determine the foreign investment component in a company or essentially specify if an entity is completely Indian owned to invest in these sectors.

As per the prevailing FDI policy any company with more than 50 per cent local holding will be considered as an Indian company and can invest in sectors closed to foreign investment through a subsidiary structure.

FDI Clearances:

The government on 7 May 2010 on recommendations of the FIPB approved 24 FDI proposals worth Rs 1,412 crore. The major investment proposal cleared was of Asianet Communications' Rs 425 crore plan for induction of foreign equity to undertake the business of broadcasting non-news and current affairs television channels. Apart from this, Star India Holdings is making an investment of Rs 324 crore to acquire shares of direct-to-home (DTH) provider Tata Sky.

The other proposals approved were of Bhilwara Energy's Rs 240 crore plan to make an amendment in the FC approval, Jyoti Structures' plan to bring in FDI to the tune of Rs 125 crore through issue of detachable warrants and of AIP Power's Rs 113 crore proposal to set up power plants either directly or indirectly by promotion of JVs. The proposals of Nifco, Ascendas IT park, and Jalan Intercontinental Hotels were also given a go ahead by the government.

In all, the government rejected four proposals including that of Jaipur IPL Cricket; Telelogic ICT Services, Bangalore; CoreObjects Software of the US and Gremach Infrastructure Equipment & Projects, Mumbai.

Further, the government has deferred its decision on 16 proposals which included several media companies like Hindustan Media Ventures of Patna, Mid Day Multimedia, INX Media, S Tel and Telestra.

FDI Inflows:

The FDI inflows for March 2010 dipped to $1.2 billion (approx Rs 5,520 crore) which is 40 per cent lower in comparison to March 2009 at $2 billion (approx Rs 9,200 crore).

FDI inflows into India have seen a drop not only in March 2010 but also over previous fiscal as a whole. FDI inflow for FY 09 -10 was down five per cent in dollar terms at $25.88 billion (approx 1,23,377 crore) as against a total FDI inflow of $27.33 billion (approx 1,23,025 crore) in FY 08-09.

As Indian economy is slowly recovering from the effects of global financial downturn of 2008-09, the current European crisis is threatening to impact Indian exports and the Indian stock market.

According to Sunil Prasad, Secretary General, Europe India Chamber of Commerce, at least 27 per cent of India's trade is with Europe and the crisis will impact India's export to the region.

Other Developments:

The Union Ministry of Commerce and Industry is likely to propose 100 per cent FDI in multi-brand retail, thus opening the doors to the likes of Wal-Mart and Tesco. However, the ministry is likely to suggest stiff local sourcing requirements and mandatory investments in backward linkages.

A discussion paper in this regard is likely to be submitted for the open debate soon. The paper is expected to make it mandatory for big multi-brand foreign retailers to create a back-end cash & carry for small shopkeepers giving them the benefit of scale on the sourcing side.

At present India does not allow foreign investment in multi-brand retail, while up to 51 per cent is allowed in single-brand retail.