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Not many direct proposals

BS Bureau

Finance minister Yashwant Sinha mentioned few further reforms in the foreign direct investment regime during his Budget speech, except a policy announcement whereby 100 per cent wholly owned operating subsidiaries will be permitted in the pharmaceutical sector subject to a minimum capitalisation norm of $50 million.

At present, 100 per cent FDI is allowed for holding companies which can set up downstream operating ventures. Even this downstream subsidiary will have a minimum domestic holding of 25 per cent.

Recently, 100 per cent foreign-owned operating companies were also allowed, but with the condition that a mandatory divestment of 25 per cent will be done in favour of resident investors within three years.

Experts say Sinha, who heads the group of ministers on FDI, may have reserved big decisions on the FDI front for a later date.

"Gone are the days when one used to wait for the finance minister to make policy announcement on the Budget day. Policies are announced throughout the year now, and those on the FDI should be expected shortly," Ravinder Singhania of law firm Singhania & Partners said.

"The Budget may or may not be used as a platform for announcements on FDI policies. The foreign investor barely looks for such decisions here. What the investor looks at is how the government is going to manage the economy, how it plans to control the fiscal deficit and what initiatives are being taken as far as divestment is concerned," Mukesh Bhutani, senior partner, Arthur Andersen India, said.

Bhutani said that the foreign investor has not been disappointed since the finance minister has given enough indications about the direction the government is planning to move in vis-a-vis divestment, downsizing, etc.

"If after this, policy decisions such as allowing 74 per cent FDI in the telecom sector are announced, there is no doubt in my mind that the FDI scenario will improve," he added.

The GoM had cleared several FDI policies recently including relaxing the FDI cap in certain sectors such as pharmaeuticals, real estate, NBFCs, etc. However, a mandatory Cabinet nod is yet to come through on most of these recommendations.

Bhutani said opening up the real estate was not priority, while infrastructure such as telecommunications and service areas such as the NBFC sector were. Several companies such as Citibank, Associates, GE Capital Services are waiting for policy announcements to make big ticket investments in the sector.

Source: Business Standard

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