The administration on Wednesday liberalized the foreign direct investment (FDI) cap in seven major economic segments comprising public sector oil refineries, whereas allowing foreign investment in segments including commodity exchanges and credit information companies (CICs).

In the case of petroleum refining by PSUs, the Union Cabinet has sanctioned raising the equity cap to 49% (from the existing 26%) with former FIPB authorization. But, it does not ideate weakening in the subsisting PSUs.

In case of trading and marketing of petroleum products, the Cabinet has relinquished an essential condition of divestment of up to 26% with Indian partner/public within five years.

Whilst FDI up to 100% via automatic method is permitted for private companies, in the case of PSUs, there was a cap of 26%.

The recent decision would relieve the entry of foreign players in the refining segment in association with PSUs.

The shift assumes importance in the backdrop of the interest imagined by foreign companies including Kuwait Petroleum for forging coalitions with new refining projects of nationalized refiners.

FDI up to 26% and the FII up to 23% have been permitted in commodity exchanges dependent on the condition that no single investor would hold over 5%.

The move is in sync with the standpoint of the Department of Economic Affairs that there should be separate caps within the overall cap of 49% for the FDI and the FII investment at 26% and 23%, respectively.

However, DIPP had said there was no justification for imposing separate caps on the FDI and the FII within the overall foreign investment cap.

The Cabinet also decided to exempt foreign investment in industrial parks from the provisions of Press Note 2 (2005) that stipulates conditions such as minimum capitalisation and a three-year lock in.

Likewise, in case of construction development projects, investment by registered FIIs under the portfolio investment scheme would be separate from the FDI and outside the provisions of Press Note 2 (2005).

Besides the minimum capitalisation of $10 million for the wholly-owned subsidiaries and $5 million for joint ventures with Indian partners, the Press Note 2 shows that original investment cannot be repatriated before a period of 3-years from closing of minimum capitalisation. It also specifies other conditions such as minimum area to be developed.