Government dials in major reforms

In another move which would promote Foreign Direct Investment (FDI) in the telecom sector–a major area of interest for US firms–the government on Thursday also permitted 100 per cent FDI through automatic route in Internet Service Providers (ISPs) not providing gateways, infrastructure providers providing dark fibre (telecom network laid down by non-telecom services providers), electronic mail and voice mail. However, the cap for foreign investment in other sectors of telecommunications including basic, cellular, GMPCS, V-sat, PMRTS, long distance (both domestic and international) other value added services, will continue to be 49 per cent.

Both these steps, taken by the Union Cabinet, would lure the foreign investors to invest in the telecom sector.

The Government further liberalised FDI rules allowing hundred per cent investment through automatic route by foreign investors, non-resident Indians and overseas corporate bodies in the Special Economic Zones (SEZs). The cabinet also fixed the payment of 2 per cent royalty for exports and 1 per cent for domestic sales under the automatic route on use of trademarks and brand-names of the foreign collaborator without technology transfer.

The offshore venture capital funds/companies have also been permitted to invest in domestic venture capital funds as well as all other companies through the automatic route, subject to SEBI regulations only. All such investments would be subject to sectoral caps applicable in specific sectors.

The FDI rules were liberalised following recommendations by the Group of Ministers (GoMs), which was set up to carry out second generation economic reforms.

As per the cabinet decision, FDI upto 100 per cent would be permitted through the automatic route for all manufacturing activities in the SEZs except for arms and ammunition, explosive and allied items of defence equipment, aircrafts and warships, atomic substances, narcotics and psychotripic substances and hazardous chemicals, distillation and brewing of alcoholic drinks and cigarettes/cigars and manufactured tobacco substitutes.

On the issue of royalty, an official spokesperson told the media that the limit of royalty beyond the prescribed level of 2 per cent for exports and 1 per cent for domestic sales, would be considered on case-to-case basis by the government.

The cabinet has also increased the payment of royalty of 8 per cent on exports and 5 per cent on domestic sales by wholly owned subsidiaries to offshore parent companies under the automatic route without any restriction on the duration of royalty payments.

The Government also announced the open sale of 3 million tonnes of rice in the current year object to create storage space and reduce carrying costs of Food Corporation of India (FCI). The stocks position of rice in the country is estimated around 14.4 million tonnes at present, causing serious ardship to the procurement agencies for storage of new crops, which is due to arrive in mandies next month. A transparent mechanism for fixing prices by the high level committee of the FCI will be adopted.

Further, a proposal to restructure the Income Tax department, providing for an additional 296 commissioners and 80 chief commissioners and reducing 2752 posts in lower categories of the department was also approved by the Cabinet on Thursday. Following the restructuring, the number of commissioners in the country would increase to 698 and chief commissioners to 116.