Aviation, petro caps may rise in FDI review

New Delhi: The annual review of the country’s foreign direct investment (FDI) norms is likely to take place next month that could bring in changes in the foreign investment caps of key sectors such as aviation, petroleum and coal. The retail sector, that has already faced a lot of political opposition, may not see changes.

In the petroleum sector, the government is considering diluting the condition that 26% of the equity held by foreign entities should be divested in favour of Indian entities in five years. Further liberalising FDI norms in asset reconstruction companies may also be on the cards. The FDI limit for ARCs is 49%, subject to approval by the Foreign Investment Promotion Board (FIPB).

In the banking sector, the cap on voting rights is also likely to be reviewed.

In aviation, the government is looking at a proposal to establish a separate head of air traffic services. The government has to define what constitutes the services and whether they should have different FDI rules and limits from the general aviation sector where FDI is capped at 49%.

The government is also looking at tightening FDI regulations to plug loopholes that could enable foreign entities to flout existing caps through indirect holdings, following the Hutch-Vodafone controversy over foreign holdings. The FIPB has asked the government to tighten norms related to both direct and indirect holdings to ensure that Indian entities do not act as fronts for foreign investors.