300% FDI rise expected from Singapore Cabinet clears comprehensive economic cooperation agreement
Our Economy Bureau / New Delhi June 21, 2005
www.business-standard.com

India is expecting a 300 per cent increase in its foreign direct investment from Singapore in the first year of the implementation of the Comprehensive Economic Cooperation Agreement (CECA), cleared by the Union Cabinet today.

Commerce and Industry Minister Kamal Nath said FDI inflows from Singapore was expected to touch $ 2 billion while Foreign Institutional Investment was expected to increase to $ 5 billion in the first year. The CECA, to be signed on June 29, will be operational from August 1, 2005.

FDI inflows from Singapore were around $ 184 million in 2004-05.

India has agreed to bind the FDI limit for telecom at 49 per cent and 74 per cent in the banking sector under the CECA.

'The CECA, India's first with any country covers economic engagements in all facets. It covers not just goods but also services including financial services, technology, cooperation in areas like patents, investments, mutual recognition of educational degrees,' Nath told reporters here.

THE CECA provides an additional window allowing Singapore-based asset management companies operating in India, to invest an additional $ 250 million over an above the $ 1 billion investment limit. Asset management companies operating in India, are, at present allowed to invest upto $ 1 billion abroad.

The CECA also includes a bilateral investment protection agreement (BIPA). For the first time India will extend national treatment not only for post establishment but also pre-establishment.

This would however be limited to a positive list where India has autonomously allowed 100 per cent FDI through the automatic route such as health, travel and road services and infrastructure sectors like townships, housing, hotels etc.

For all other financial service providers, only Singapore owned or controlled companies would be allowed to enter into India during the first four years. The position would be reviewed thereafter.

The norm that foreign companies can pick up only upto 10 per cent equity in any Indian company has also been relaxed for two Singapore based investment arms - GIC and Temasek. The two would be treated as separate entities and allowed to pick upto 10 per cent equity each. Until now, they were treated by the Indian government as a single entity.

The existing Double taxation avoidance agreement has also been amended to provide for sharing of information and improved tax treatment on the lines of the Mauritius DTAA.

The agreement includes an early harvest scheme for goods, under which India will grant duty free access to 506 tariff lines comprising mostly items under the Information Technology Agreement (ITA).

In addition to this, the duties would be eliminated in phases by 10 per cent, 25 per cent, 50 per cent, 75 per cent and 100 per cent on 2,202 tariff lines by 2009.

On around 2,407 tariff lines the duties would be reduced in a phased manner by 5 per cent, 10 per cent, 20 per cent, 35 per cent and 50 per cent by 2009. A negative list comprising 6,551 tariff lines has been kept comprising mostly agricultural and textile items on which no duty concessions would be given.

Singapore will also grant duty free access to Indian beer. The product until now attracted 0.8 Singpaore dollars per litre. India has however retained beer in its negative list. Singapore has agreed to recognise 129 professional degrees offered by the University Grants Commission.

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