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| RBI stalls proposed changes to FDI policy |
| Surajeet Das Gupta / New Delhi Aug 24, 2010, 00:07 IST |
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Crucial changes to the foreign direct investment (FDI) policy announced by the Ministry of Commerce & Industry on March 31 have been stalled, with the Reserve Bank of India (RBI) asking the ministry to furnish a “rationale” for the amendments before they are notified under the Foreign Exchange Management Act.
 RBI has also asked whether the new rules will be with retrospective effect for sectors that previously required no government permission, but have been bought under Foreign Investment Promotion Board (FIPB) scrutiny under the new policy.
The central bank has also made it clear that changes to FDI policy for private sector banking by the ministry would be referred to RBI’s Department of Banking Operations and Development for further review.
In a communication to the Department of Industrial Policy and Promotion (DIPP) under the ministry a few days ago, RBI asked for a “rationale” for the changes in sectors under Annexure II and Annexure III.
Annexure II includes sectors like non-scheduled air transport services, chartered and cargo airlines, apart from ground handling services, in which the new policy allows FDI up to 49 per cent under the automatic route, and from over 50-74 per cent with FIPB approval. Earlier, FDI up to 74 per cent was allowed under the automatic route.
Annexure III consists of ISPs without a gateway, who, under the new policy, have been allowed FDI up to 49 per cent under the automatic route and up to 74 per cent through the FIPB route. Earlier, FDI up to 49 per cent was allowed under the automatic route and 100 per cent via the FIPB route.
RBI has also raised questions on various changes made to FDI policy under Annexure IV, which relates to the media and security agency services. Being part of the “residuary sector” earlier, FDI in these areas did not require government permission and, in many cases, there was no clarity in policy.
RBI has now asked DIPP to advise it on what “treatment” should be given to companies that have already made investments in these sectors under the automatic route before the consolidated FDI policy.
IMPACTED SECTORS
# Private banking
# Security agencies
# Headend in the sky broadcasting services
# Publishing of Indian editions of foreign magazines dealing with news and current affairs
# ISPs without a gateway
# Non-scheduled air transport services, non scheduled airlines, chartered airlines and cargo airlines
# Ground handling services |
Annexure IV includes Indian editions of foreign magazines dealing with news and current affairs. Under the ministry’s consolidated guidelines, FDI is allowed up to 26 per cent under the FIPB route. Also, in the publishing of facsimile editions of foreign newspapers, FDI up to 100 per cent will be allowed, but through the FIPB route.
In the case of headend in the sky broadcasting services, FDI via the automatic route has been allowed under the new policy and up to 74 per cent via the FIPB route. In the case of security agencies, now FDI will be allowed up to 49 per cent under the FIPB route again.
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