06-16-2005, 07:09 AM
<!--QuoteBegin-->QUOTE<!--QuoteEBegin--><b>One big policy confusion</b>
June 16, 2005
<b>Recent reports suggest that the Ministry of Civil Aviation has been advised by the Department of Economic Affairs, Ministry of Finance, that a Person of Indian Origin (PIO) should be treated like any other foreigner and his investment in a domestic airline be capped at 49 per cent.</b>
<b>This is in contrast to the facility extended to the NRI, who is allowed to invest 100 per cent in a domestic airline.</b> However, according to various circulars and notifications issued by the RBI,<b> a PIO is to be treated on par with an NRI.</b>
Replying to a question in the Rajya Sabha on July 15, 2004, Minister of State for <b>NRI Affairs Jagdish Tytler said that PIOs get âparity with NRIs in respect of facilities available to latter in economic, financial and educational fieldsâ.</b> He said that the benefits India will get by providing dual citizenship include strengthening of emotional and cultural ties with India, foreign investment in various sectors and transfer of technology.
Earlier on December 4, 2002, the then Minister of State in the MEA, Digvijay Singh, told the Lok Sabha that all PIO card holders shall enjoy parity with NRIs in respect of all facilities available to the latter in economic, financial and educational fields except in matters relating to acquisition of agricultural or plantation properties. No parity shall be allowed in the sphere of political rights.
The intention is to cause confusion after the cabinet decision of October 20, 2004, to hike FDI limit in domestic airline ventures from 40 per cent to 49 per cent. In doing so, NRIs were allowed to invest 100 per cent. As for FDI from others (read: foreigners barring foreign airlines), they will be allowed automatic approval by the RBI up to 49 per cent. The cabinetâs intention was clear. It meant that since PIOs enjoyed parity with NRIs, they would also be allowed 100 per cent investment in a domestic airline.
But this was not to be. <b>A bright bulb in the NRI cell of the Finance Ministry stated that the air transport sector (domestic airlines) is an extremely important sector which requires management and technical skills and financial strength of a âvery high degree of successful operationsâ. </b>Apparently, for strategic reasons, this was never defined. And the nodal Ministry of Civil Aviation bracketed PIOs with other foreigners and said they could not invest more than 49 per cent.
The Department of Industrial Policy and Promotion (DIPP) of the Ministry of Industry and Commerce held an opposite view. It informed the Department of Economic Affairs that the FDI policy was incorporated under FEMA (transfer of issue of security by a person resident outside India) Regulations 2000. These regulations refer to an NRI as defined in the Foreign Exchange Management Regulations 2000 under which âNRIâ is defined as a person resident outside India whoâs a citizen of India or a PIO. Thus, the provisions of FDI policy as notified in FEMA regulations would also apply to the PIO.
On June 7, 2005, the DIPP informed that NRI investment up to 100 per cent is permitted on the automatic route subject to no equity participation by foreign airlines. The DIPP then recounted the same regulations and concluded âin the light of the foregoing, investment by NRI (including PIO) would be permitted in the air transport services sector as per the notified policyâ. In view of the unnecessary confusion, I asked the RBI whether a PIO is entitled to invest 100 per cent in a domestic airline like an NRI.
The Exchange Control Department (ECD) stated that according to FEMA Regulations, an NRI is a person resident outside India who is a citizen of India or a PIO. For the purpose of i) investment in shares/securities of Indian companies and ii) holding deposits with banks/Indian companies, âPIOâ means a citizen of any country other than Bangladesh or Pakistan if a) he at any time held an Indian passport, or b) he or either of his parents or any of his grand-parents was a citizen of India by virtue of the Indian Constitution or the Citizenship Act 1955, or c) the person is a spouse of an Indian citizen or a person referred to in sub-clause a) or b).
The RBI has notified that under the Automatic Rule in the Air Transport Services (Domestic Airlines) sector, NRIs may invest up to 100 per cent and other non-residents up to 49 per cent of the paid-up capital of the Indian company. No direct or indirect equity by foreign airlines is permitted. The notification will come into force from the date of its publication in the official gazette. The RBI will issue a circular on the subject after the notification has been gazetted. While Overseas Corporate Bodies (OCBs)Â have been derecognised as a class of investor entity with effect from September 16, 2003, an erstwhile OCB may invest in equity of Indian company as a non-resident incorporated entity with the prior approval of the RBI/government. In their case, the limits as applicable to any other non-resident would apply.
The RBIâs PR department told me in a mail: âA careful reading of the ECDâs reply clearly indicates that the PIOs are treated on par with NRIs. This applies for their investments in domestic airlines too. Further, the RBI notification for allowing NRIs (and PIOs now that they are at par) to make 100 per cent investment in domestic airlines is pending publication in the official gazette. Once this is done, we will also issue our circular notifying it.â
Policy confusion not only scares investors away, but also strengthens the cause of crony capitalist and anti-competitive forces.
<!--QuoteEnd--><!--QuoteEEnd-->
UPA is not only cluesless but brainless.
June 16, 2005
<b>Recent reports suggest that the Ministry of Civil Aviation has been advised by the Department of Economic Affairs, Ministry of Finance, that a Person of Indian Origin (PIO) should be treated like any other foreigner and his investment in a domestic airline be capped at 49 per cent.</b>
<b>This is in contrast to the facility extended to the NRI, who is allowed to invest 100 per cent in a domestic airline.</b> However, according to various circulars and notifications issued by the RBI,<b> a PIO is to be treated on par with an NRI.</b>
Replying to a question in the Rajya Sabha on July 15, 2004, Minister of State for <b>NRI Affairs Jagdish Tytler said that PIOs get âparity with NRIs in respect of facilities available to latter in economic, financial and educational fieldsâ.</b> He said that the benefits India will get by providing dual citizenship include strengthening of emotional and cultural ties with India, foreign investment in various sectors and transfer of technology.
Earlier on December 4, 2002, the then Minister of State in the MEA, Digvijay Singh, told the Lok Sabha that all PIO card holders shall enjoy parity with NRIs in respect of all facilities available to the latter in economic, financial and educational fields except in matters relating to acquisition of agricultural or plantation properties. No parity shall be allowed in the sphere of political rights.
The intention is to cause confusion after the cabinet decision of October 20, 2004, to hike FDI limit in domestic airline ventures from 40 per cent to 49 per cent. In doing so, NRIs were allowed to invest 100 per cent. As for FDI from others (read: foreigners barring foreign airlines), they will be allowed automatic approval by the RBI up to 49 per cent. The cabinetâs intention was clear. It meant that since PIOs enjoyed parity with NRIs, they would also be allowed 100 per cent investment in a domestic airline.
But this was not to be. <b>A bright bulb in the NRI cell of the Finance Ministry stated that the air transport sector (domestic airlines) is an extremely important sector which requires management and technical skills and financial strength of a âvery high degree of successful operationsâ. </b>Apparently, for strategic reasons, this was never defined. And the nodal Ministry of Civil Aviation bracketed PIOs with other foreigners and said they could not invest more than 49 per cent.
The Department of Industrial Policy and Promotion (DIPP) of the Ministry of Industry and Commerce held an opposite view. It informed the Department of Economic Affairs that the FDI policy was incorporated under FEMA (transfer of issue of security by a person resident outside India) Regulations 2000. These regulations refer to an NRI as defined in the Foreign Exchange Management Regulations 2000 under which âNRIâ is defined as a person resident outside India whoâs a citizen of India or a PIO. Thus, the provisions of FDI policy as notified in FEMA regulations would also apply to the PIO.
On June 7, 2005, the DIPP informed that NRI investment up to 100 per cent is permitted on the automatic route subject to no equity participation by foreign airlines. The DIPP then recounted the same regulations and concluded âin the light of the foregoing, investment by NRI (including PIO) would be permitted in the air transport services sector as per the notified policyâ. In view of the unnecessary confusion, I asked the RBI whether a PIO is entitled to invest 100 per cent in a domestic airline like an NRI.
The Exchange Control Department (ECD) stated that according to FEMA Regulations, an NRI is a person resident outside India who is a citizen of India or a PIO. For the purpose of i) investment in shares/securities of Indian companies and ii) holding deposits with banks/Indian companies, âPIOâ means a citizen of any country other than Bangladesh or Pakistan if a) he at any time held an Indian passport, or b) he or either of his parents or any of his grand-parents was a citizen of India by virtue of the Indian Constitution or the Citizenship Act 1955, or c) the person is a spouse of an Indian citizen or a person referred to in sub-clause a) or b).
The RBI has notified that under the Automatic Rule in the Air Transport Services (Domestic Airlines) sector, NRIs may invest up to 100 per cent and other non-residents up to 49 per cent of the paid-up capital of the Indian company. No direct or indirect equity by foreign airlines is permitted. The notification will come into force from the date of its publication in the official gazette. The RBI will issue a circular on the subject after the notification has been gazetted. While Overseas Corporate Bodies (OCBs)Â have been derecognised as a class of investor entity with effect from September 16, 2003, an erstwhile OCB may invest in equity of Indian company as a non-resident incorporated entity with the prior approval of the RBI/government. In their case, the limits as applicable to any other non-resident would apply.
The RBIâs PR department told me in a mail: âA careful reading of the ECDâs reply clearly indicates that the PIOs are treated on par with NRIs. This applies for their investments in domestic airlines too. Further, the RBI notification for allowing NRIs (and PIOs now that they are at par) to make 100 per cent investment in domestic airlines is pending publication in the official gazette. Once this is done, we will also issue our circular notifying it.â
Policy confusion not only scares investors away, but also strengthens the cause of crony capitalist and anti-competitive forces.
<!--QuoteEnd--><!--QuoteEEnd-->
UPA is not only cluesless but brainless.