New Delhi: The Department of Industrial Policy and Promotion (DIPP) is consulting other union ministries on whether the government should formulate uniform guidelines on foreign direct investment (FDI) across all sectors.

This follows a letter sent to the DIPP by Information and Broadcasting (I&B) secretary Asha Swarup, pressing for "uniform guidelines" to arrive at the foreign equity component and the FDI component in a company.

At present, each ministry has its own criteria for calculation of the foreign investment component in a company. Investment by foreign institutional investors (FIIs) is not treated as FDI in the civil aviation sector for example, while in telecom it falls under FDI.

The ministry of information and broadcasting (I&B) now wants that there should be uniform guidelines for calculating FDI in all sectors. This, it says, will make every sector more transparent for foreign investors to invest in India.

The I&B Ministry seems to be facing a problem on what should be considered FDI in a company. Clause 3.1.3 of the uplinking guidelines says that in calculating the foreign equity of the applicant company, foreign holding components in the equity of Indian companies that are shareholders of the applicant company should be taken on a pro-rata basis, so as to arrive at the "total foreign holding" in the applicant company.

The ministry says it is difficult to obtain the shareholding pattern of each and every Indian company investing in the applicant company. The problem is further complicated if there are further shareholding companies within these investor companies.

Ministry sources said that many applicant companies are unable to provide such details, especially when the number of shareholding companies is large. The problem is further compounded because the shares are being traded and the shareholding pattern is changes on a daily basis.

In these situations, the ministry has determined all shares of which the details are unknown to be foreign equity, while assessing the eligibility of the applicant company. For borderline cases, the approach is grossly unfair to the applicant company and a large number of broadcasters, including NDTV, GBN, and TV18, have appealed for a change in the foreign equity structure.

Since the ministry was unable to take any action as there is no clarity on the issue, it referred the matter to the DIPP, which is seriously considering the I&B ministry''s suggestion and is presently in the process of consulting other ministries on this issue.

How to enforce FDI norms?
Just as Reliance and other big retailers face closure in UP comes news from Bangalore, that there is a German retail major that''s openly flouting FDI norms by selling products directly to consumers. According to guidelines, foreign-owned retail chains can operate only wholesale outlets, selling to retailers, other wholesalers and business owners.

Buyers need membership cards to be able to purchase, which are to be issued only after verifying VAT registration numbers and taking photo identity cards. These are the conditions under which Metro Cash & Carry was allowed to open its doors.

But it functions like a hypermarket or a mall. Customers can buy groceries, clothes and other utilities, and not necessarily in bulk. Even mobile phones are sold in single pieces.

Retailers in Bangalore had filed a case against Metro in 2003, for selling directly to consumers. A state government inquiry found these allegations to be true, and the government informed the union finance ministry in 2004. But no action has been taken.

But the company denies the retailers'' charges. It says its teams verify all applicants are businesses before issuing cards. It is difficult to police every purchase, and a few violations may happen. There are also business situations that seem like retail purchase, like waiters in a restaurant or hospital employees looking for uniforms, a Metro representative told the media.
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