INDIA BUSINESS WORLD - JANUARY 16^th - JANUARY 31^st - 2008

FDI GATES THROWN OPEN WIDER: 49% IN COMMEXES, 100% FDI IN TITANIUM MINING & 74% IN NON-SCHEDULED AIRLINES

The government further liberalised foreign direct investment (FDI) norms in seven key sectors, allowing 74% FDI in nonscheduled airlines, 49% foreign investment in commodity exchanges and up to 49% FDI in credit information companies (CICs).

The FDI review policy, approved by the Cabinet, has also increased the cap from 26% to 49% (with prior approval from the Foreign Investment Promotion Board) in petroleum refining by PSUs, and allowed 100% FDI in titanium mining.

In a boost to the real estate sector, investments by registered FIIs have been kept out of the purview of the three-year lock-in period under Press Note 2(2005) applicable for FDI investments.

"The general pattern of foreign investment would be FDI up to 26% and FII up to 23% in sectors where 49% FDI is allowed. However, various sectors may have different combinations for FDI and FII investments," information & broadcasting minister Priyaranjan Dasmunsi told reporters while briefing them about the Cabinet decisions.

In the aviation sector, the government has decided to continue with the existing FDI cap at 49% for the automatic route and 100% for NRIs, subject to no direct or indirect participation by foreign airlines in domestic scheduled passenger airlines.

The policy has, however, proposed FDI up to 100% via the automatic route for maintenance & repair organisations, flying training institutes, technical training institutions and helicopter services/sea plane services.

In a major step towards corporatising commodity exchanges and roping in international players, the policy has allowed FDI up to 26% and FII up to 23% in such exchanges with a 5% cap on a single entity. This would effectively deny foreign investors a say in the company and they would not be allowed on the boards of commodity exchanges. However, in case of CICs, the 49% FDI cap would be subject to government approval and regulatory clearance from RBI. It has been proposed that a subcap of 24% (within 49% FDI cap) would be available for FII investment in CICs listed at stock exchanges.

The policy has given a boost to mining and mineral separation of titanium bearing minerals and ores by allowing FDI up to 100%. India has the world's largest reserves of ilmenite ore, which is used to produce titanium dioxide and metal used extensively by aviation and defence industries. The FDI permission would be allowed only if the mineral separation activity by a foreign company is accompanied by investment in local value-addition units and transfer of technology.

The policy has also clarified that provisions of Press Note 2(2005) would not apply to industrial parks. Similarly, FII investments in construction projects would also not be governed under this government notification.