India removes refining sector investment hurdles

The Indian government June 13 raised the foreign direct investment (FDI) ceiling to 100% in the crucial petroleum refining and e-commerce sectors and abolished the 15 billion rupee investment limit in the power sector as part of its efforts to boost private participation in infrastructure. In the oil refining and e-commerce sectors, only 49% FDI was allowed previously. In effect, the move is ushering in a more liberal FDI regime through the so-called 'automatic route.'


NEW DELHI�The Indian government June 13 raised the foreign direct investment (FDI) ceiling to 100% in the crucial petroleum refining and e-commerce sectors and abolished the 15 billion rupee investment limit in the power sector as part of its efforts to boost private participation in infrastructure. In the oil refining and e-commerce sectors, only 49% FDI was allowed previously through the so-called "automatic route."

In effect, the move is ushering in a more liberal FDI regime through the automatic route. (Investments coming in through the automatic route do not have to be placed before the foreign investments board for clearance, although they must be reported to the Reserve Bank of India.)

According to Pramod Mahajan, Minister for Parliamentary Affairs and Information Technology, because FDI creates employment and infrastructure in the country, it is considered preferable to imports.

The Swadeshi, or "indigenization," lobby in the Vajpayee coalition government is irked by the decision, however. S. Gurumurthy, ideologue in the National Democratic Alliance (NDA)�the ruling alliance�thinks there is no need to remove caps in the power and refining sectors. In his view, the number of projects already planned in the refining sector is sufficient to meet the country�s requirements.

Mahajan, however, noted that there is always an uproar when foreign investment is made easier. This is no assault on Swadeshi but practical economics, he said: �Money spent on imports is just money down the drain. What is better, more permanent investment in India or expenditures on imports?"

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