Economics notes for law students:What is the amount of FDI allowed by the Government in Construction, Telecom, and other Sectors

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Economics notes for law students:What is the amount of FDI allowed by the Government in Construction, Telecom, and other Sectors

What is the amount of FDI allowed by the Government in Construction, Telecom, and other Sectors?

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(1) Construction Sector 100% FDI Allowed                                                                                          The Government approved a 100 percent foreign direct investment proposal in the construction sector on the automatic route. Conditions restricting FDI to a minimum area of 100 acres and 2,000 dwelling units are relaxed to 25 acres and 50,000 square meters for constructional development projects. To avoid speculation in real estate by foreign investors, the sale of undeveloped land had been prohibited.

Earlier 100 percent of FDI had been allowed in the construction sector but it had to be cleared on a case-by-case basis by the Foreign Investment Promotion Board (FIPB). Proposal for FDI could now come indirectly through the automatic route. Foreign investors could now come in any area but would have to construct at least 50,000 square meters within a timeframe so that they did not hold hands for speculative purposes. The investment would further be subject to the following conditions-a minimum capitalization of $10 million for wholly-owned subsidiaries and $5 million for joint ventures with Indian partners.

The funds would have to be brought in within six months of commencement of business. Original investment cannot be repatriated before a period of three years from completion of minimum capitalization However, the investor may be permitted to exit earlier with the prior approval of the Government through the Foreign Investment Promotion Board. These projects shall have to conform to the norms and standards, including land use requirements and provisions of community amenities and common facilities as laid down in the applicable building control regulations, by-laws, rules, and other regulations of the State Government or municipal bodies or other local bodies concerned.

(2) Telecom Sector: FDI Hiked to 74 Percent

The ceiling of foreign direct investment in the telecom sector has recently been increased to 74 percent from 49 percent. Now, the telecom companies are in a position to have easier access to larger chunks of foreign investment for capacity expansion and a wider network. Consumers can look forward to cheaper call rates.

According to new norms, the foreign holding to the extent of 74 percent can come directly or indirectly into the operating company or through a holding company. The condition is that the remaining 26 percent equity stake will be held by resident India citizens or an ‘Indian Company’ which is defined as one in which the FDI does not exceed 49 percent. The proportionate foreign investment component of such an Indian company will also be counted towards the overall ceiling of 74 percent.

To ensure that the above stipulation is being adhered to, the licensee, or the company, will be required to disclose the status of such foreign holding and certify, on a half-yearly basis, that the FDI limit is within the 74 percent cap. Certain conditions have also been put in place to safeguard India’s national interest, in particular, to ensure that the operating companies do not go out of Indian hands. The companies will have to ensure that the majority of directors on the board, including the chairman, the managing director, and CEO, are resident Indian citizens. India is among the fastest-growing markets in terms of connections added, there is a need for fresh funds to increase the growth of the industry. Till December 2004, India had around 90 million connections with mobile connections crossing fixed-line connections in October 2004. Of the target of 250 million connections by end-2007, the target for mobile connections is 200 million and fixed could be stable at around 50 million connections.

                                                         Limits of Other Sectors(3) Civil Aviation: For airlines, the current foreign direct investment (FDI) cap is 49 percent. For airports, it is up to 100 percent, though Government approval is required for FDI beyond 74 percent.
(4) Petroleum (other than refining): 100 percent FDI allowed for exploration in small fields through competitive bidding, up to 60 percent in unincorporated joint ventures, and up to 51 percent incorporated joint ventures.
(5) Coal & Lignite, Tea plantation, Drugs, and pharma, Roads and highways, Hotels and tourism: 100 percent.
(6) Print media: 26 percent FDI in news and current affairs and 74 percent FDI in other print media.
(7) Power: 100 percent FDI in transmission, generation, etc.
(8) Banking: 49 percent FDI.
(9) Insurance: 26 percent FDI.
Note: The Government on 24-01.06 has decided to allow 510% FDI in the Retail Sector despite opposition from its Left Partners.

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