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India eases foreign investment rules

The Indian cabinet on Monday announced measures aimed at attracting more foreign direct investment, or FDI, in the refining, e-commerce and power sectors, as well as consumer goods industries.

Parliamentary Affairs Minister Pramod Mahajan said the federal cabinet had decided that there would be no upper limit on the extent of foreign equity in refinery, power and e-commerce projects.

Previous rules permitted 100 per cent foreign equity in power generation, transmission and distribution projects, but the equity amount was restricted to Rs 15 billion.

The FDI limit in the refining and electronic commerce sectors has been raised to 100 per cent from 49 per cent as well.

"In e-commerce, FDI up to 100 per cent will be permitted with the condition that such companies will divest 26 per cent of their equity in favour of the Indian public in five years," the minister said.

No such condition would be applicable to refinery projects, he said.

Consumer goods

The cabinet also decided to abolish the 'dividend balancing' norm on consumer goods which was seen by foreign investors as "very sensitive", he said.

Currently, firms with foreign equity holding in any of the 22 consumer goods sectors have to earn foreign exchange through exports to meet the forex outflow towards their overseas dividend payouts.

"The condition of dividend balancing on specified consumer goods would be removed from the date of issue of a press note...," Mahajan told reporters.

The export obligation and dividend balancing commitment will remain applicable until the withdrawal is announced through the issue of a press statement, he added.

The norms were being relaxed "because foreign exchange outflow on account of this dividend balancing is not very significant but foreign investors perceived this to be very sensitive," Mahajan said.

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