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Rediff.com  » Business » Panel identifies 9 sectors for mandatory Indian control

Panel identifies 9 sectors for mandatory Indian control

June 24, 2013 11:06 IST

Indian flagThe Arvind Mayaram committee, set up to liberalise the country’s foreign direct investment policy, has recommended nine sectors be categorised as those where ‘Indian ownership’ and ‘control’ will be mandatory.

These are FM radio, uplinking news & current affairs, print media (news & current affairs), commodity exchanges, stock exchanges along with depositories and clearing corporation, power exchanges, petroleum & natural gas refining, insurance, defence production and private security agencies.

The committee’s recommendation will also pave the way for the Jet-Etihad deal, as it has recommended amendment of the stipulation under the civil aviation requirements that effective control and ownership be retained with Indians in airlines.

It has proposed to raise the FDI cap in airlines to 74 per cent.

Abu Dhabi-based Etihad has agreed to buy 24 per cent in India's Jet Airways but the deal has been facing delays over 'effective control'.

However, when Indian control and ownership cease to exist, the FDI component has to seek the Foreign Investment Promotion Board’s approval.

This means the deal could come without FIPB vetting.

The committee has suggested FDI be capped at 49 per cent in nine sectors and clearance (except for defence production and private security agencies) be through the automatic route.

It has clarified FDI will not include portfolio investments in two of these sectors -- insurance and petroleum & natural gas refining.

To protect India’s strategic interests in defence production and private security agencies, foreign investments in these sectors will not be cleared via the automatic route and will be subject to FIPB scrutiny.

In its recommendations, the Mayaram panel has said that despite 51 per cent foreign investment, firms in these sectors will be under Indian ownership and control.

The definition of control is being worked out.

The recommendations, if accepted, will mean significant liberalisation.

This is because in some sectors, such as commodity exchanges, stock exchanges and power exchanges, though up to 49 per cent FDI is allowed, the proposals currently need to be vetted by FIPB.

Petroleum & natural gas refining companies, too, can bring in up to 49 per cent FDI but for public-sector companies that needs to come via FIPB.

Now, these are proposed to come under the automatic route.

The panel has also proposed increasing the FDI cap for the insurance sector -- from the current 26 per cent to 49 per cent.

But that will require amendment to the Insurance Act which is pending in Parliament.

Additionally, the committee has proposed that FDI cap for FM radio, uplinking of news and current affairs, publishing of periodicals and newspapers dealing with news & current affairs be raised from 26 per cent (including foreign institutional investors) to 49 per cent.

It has also suggested that these investments should be approved through the automatic route, and not via FIPB.

However, foreign investment in these sectors will require licensing by the information & broadcasting ministry and security clearance by the home ministry.

Prime Minister Manmohan Singh will discuss these recommendations with senior ministers early next month. After that, it will be taken up by Cabinet by third week of July.

The committee has identified certain sectors where some kind of Indian participation is necessary, and to block special resolutions on companies’ boards, Indians must have a 26 per cent stake.

These are primarily the sectors that are still in their nascent stage or where financial security is needed.

These include banking, multi-brand retail trading, satellite establishment & operations and foreign airlines' investment in domestic scheduled passenger airlines -- where FDI will be increased to 74 per cent.

Among these sectors, private banking already has the requirements proposed by the panel.

As such, there is a status quo in this sector.

Multi-brand retail trading is allowed up to take up to 49 per cent FDI, subject to state’s approval under the FIPB route.

The panel has suggested that sectors where Indian control and ownership are not material, 100 per cent foreign investment be allowed.

Among these categories fall telecom, mining, single-brand retail, pharma, holding companies, asset reconstruction company and the tea sector, including plantations.

However, after an entity ceases to be under Indian ownership and control, the foreign investment will have to come from the FIPB route.

Telecom currently has 74 per cent FDI cap, while single-brand retail can take 100 per cent FDI (but under the FIPB route).

In pharma, FDI is allowed under the FIPB route for brownfield (existing)projects.

However, the committee has proposed that the sectors -- IP services in telecom, broadcasting carriage services, uplinking and downlinking of non-news and current affairs and TV channels, printing, publishing of magazine and facsimile edition of foreign newspapers, existing airport projects, non-scheduled air transport services, credit information companies and courier services -- be placed under 100 per cent foreign investment under automatic route.

The rationale is that the nature of these sectors is akin to infrastructure.

Currently, 100 per cent FDI is allowed under the automatic route in infrastructure, energy and manufacturing. The committee is for keeping these intact.

Surajeet Das Gupta and Indivjal Dhasmana in New Delhi
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