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Indian Govt relaxes FDI norms

This opens new areas like commodity exchanges, credit information and aircraft maintenance for overseas investors, reports Gaurav Choudhury.

business Updated: Jan 30, 2008 22:44 IST
Gaurav Choudhury

The government on Wednesday brought major changes to foreign direct investment (FDI) rules, easing existing curbs on overseas capital in such key areas as real estate, petroleum refining, commodity exchanges, mining and aviation.

The decision, taken at a meeting of the Cabinet, follows a months-long review of the FDI policy, which the government began as part of efforts to boost foreign capital inflows.

The review, however, did not include the politically contentious issue of allowing foreign multi-brand retailers like Wal-Mart and Carrefour to open front-end stores here.

The changes cleared by the Cabinet included increasing the limit on FDI to 100 percent for titanium mining and aircraft maintenance companies, from 49 to 74 percent in cargo and chartered airlines, from 26 percent to 49 percent in public sector refining companies, an official statement said.

The changes are expected to boost FDI inflows, which peaked to $16 billion through last fiscal year. In the current fiscal year ending March, the government expects such inflows to reach $26 billion.

The most significant of the decisions relate to aviation sector, where the existing cap on FDI in passenger airlines remains unchanged, but several other areas were reclassified for easier norms.

These include treating cargo and chartered airlines on a separate footing and defining aircraft maintenance, repair and overhaul as a new category.

Aircraft manufacturers Boeing and Airbus can set up fully owned MROs in future.

Express cargo companies, such as DHL and Fedex, are seeking to cash in on the logistics boom in India. The total tonnage handled at all airports in India was close to 2 million tonnes in 2006-07 and growing at over 10 per cent.

The Cabinet, however, decided that only non-airline companies from overseas would be eligible for 100 percent ownership of cargo and chartered airlines, the statement said.

Also, foreign firms can now set up wholly-owned subsidiaries to run flying training institutes, technical training institutions, helicopter and seaplane services, it said.

There is a severe shortage of trained pilots in India and the situation could get worse as airlines induct more aircraft to cash in on the booming aviation sector that has grown by over 25 per cent in recent years.

The current strength of Indian pilots is 3,950 against the requirement of 4,540. Airlines are meeting the gap by employing foreign pilots.

Canada-based CAE Inc is setting up National Flying Training Institute (NFTI), a flying and aviation training institute at Gondia in Maharashtra, as a joint venture enterprise with state-owned Airports Authority of India (AAI).

Gates have been opened to foreign investors in ground handling services, subject to an equity cap of 74 per cent. Among other changes, FDI would be allowed up to 49 per cent – of which up to 23 percent could come from portfolio investors -- in listed credit information companies.

Also, foreign institutional investors (FIIs) can invest in realty companies subject to regulatory approval. Foreign investment norms for industrial parks have also been eased, the government statement said.

As regards, allowing 100 per cent FDI in mining of titanium, the offer comes with a rider that prospective foreign players in this area would have to add value to what they mine within the country and also guarantee transfer of technology, it said.