India Law Journal

Legal Articles

Liberalisation of Foreign Direct Investment (“FDI”) Policy

K.Ravi Ranjan and Vidya Sunderam comment on the liberalisation of India’s FDI policy.

Pursuant to the Union Cabinet approving further liberalisation of the Indian economy, the Ministry of Commerce & Industry, Department of Industrial Policy & Promotion, notified the increased ceilings for FDI on 12th March 2008, as set out below:

Sector/activity	Existing sectoral cap	Sectoral cap (Post Notification with Conditions, if any)
Credit Information	100%	Foreign investment permitted up to 49%, subject to approval from the Government and the Reserve Bank of India (“RBI”). Investment by registered Foreign Institutional Investors (“FIIs”) permitted up to 24%, subject to the 49% overall limit (only in companies whose shares are traded on a recognised stock exchange). FII investment will be permitted subject to conditions that: No single entity should directly or indirectly hold morethan 10%; Any acquisition in excess of 1% to be reported to RBI; and

Commodity Exchanges	No clear policy unlike for Stock Exchanges	FDI permitted up to 26%; for registered FIIs under the Portfolio Investment Scheme, investment permitted up to 23%, with prior approval. FII purchases to be restricted only to the secondary market and no foreign investor/entity, including persons acting in concert, to hold more than 5% equity in these companies.


Civil Aviation Sector :	Only 'Air Transport Services' existed as one comprehensive sector.
Scheduled Air Transport Service	49% limit on FDI and 100% on Non-Resident Indians (“NRIs”)	The limits of FDI up to 49% and investment upto 100 % by NRIs has also been extended to Domestic Scheduled Passenger Airlines. Activity is not less than 66% of the allocable area.

Non-Scheduled Air Transport Service; Non-Scheduled		FDI Permitted up to 74% and NRI investment permitted up to100 %

Helicopter/ Seaplane services requiring Directorate General of Civil Aviation approval/Chartered /Cargo Airlines Domestic Scheduled Passenger Airlines		100 %

Ground Handling services		FDI permitted up to 74%, NRI investment permitted up to 100%

Maintenance and repair organisations, flying / technical training institutions		100 %


Petroleum & Natural Gas sector
Refining	26%	49 %

Actual trading and marketing of petroleum products	Compulsory divestment upto 26% within 5 years.	The condition prescribing compulsory divestment of upto 26% equity within 5 years has been deleted.

Mining for Titanium bearing minerals and ores	74% where one partner should be a Public Sector Unit.	100% subject to prior approval of the Government, compliance with the respective sectoral guidelines and the Mines and Minerals (Development and Regulation Act, 1957).

These reforms aim at boosting the investment friendly image of the country. The civil aviation sector has seen a major restructuring exercise with individual sectoral caps being laid down for the specific segments of Air Transport Services. Commodity Exchanges have found a mention in this phase of reform; this should bring more efficiency to this sector, following in the footsteps of reforms carried out in case of Stock Exchanges. Two notable omissions are retail and insurance. A proposal regarding delinking of FII and FDI norms in real estate also does not find a mention here. Notwithstanding the above, the policy review has removed bottlenecks in the foreign investment sector making India one of the most exciting emerging markets in the world.

_________________________________________________________________ K. RAVI RANJAN is an attorney and VIDYA SUNDERAM is an intern at Universal Legal which is affiliated to The Chugh Firm, U.S.A. (www.chugh.com)