The Union Cabinet on June 12, 2000 further liberalised the foreign direct investment norms by allowing upto 100 per cent foreign equity in crude refining and e-commerce and also removed the dividend balancing clause for the 22 consumer goods sectors.

Rs. 1500 crore ceiling on FDI proposals for power projects cleared through the automatic route has also been removed.

Though the government has already allowed upto 100 per cent FDI for power projects, now the cap on equity investments has been removed. The automatic route, however, is not applicable to atomic power plants.

On the e-commerce front, Shri Pramod Mahajan, Parliamentary affairs and information technology minister has clarified that the government permitted 100 per cent FDI only in business-to-business segment. Also, such companies will have to divest 26 per cent of their equity in favour of the Indian public within five years.

Under the dividend balancing norms, foreign companies in the 22 specified sectors - including soft drinks, white goods, entertainment electronics, cigarettes, and motor cars - were required to bring in export earnings within seven years in proportion with the foreign exchange outgo through dividend payments. This clause has now been removed.  

The CCEA also extended the scheme for accelerated generation and supply under the Power Finance Corporation. The four per cent interest subsidy for renovation and modernisation and life extension programmes has been given to thermal projects which came up by March 21, 2001 and hydel projects which came up by March 31, 2004.


The government on June 14, 2000 further liberalised the norms for external commercial borrowings and redefined the average maturity period, in keeping with the overall objective of simplifying the norms.   The average maturity period will now be the weighted average of all disbursements and its period of retention by the borrower.

All fresh ECB approvals of up to $ 50 million and refinancing of outstanding loans will be put on the automatic route.

RBI has been empowered to clear all loans up to $ 100 million. Earlier this was restricted to the $ 5 million scheme and approvals for loans up to $ 10 million under all other windows.  It will also replace finance ministry as the authority for clearing all pre-payments. This will cover even past loans, which were cleared by finance ministry. The norms for pre-payment remain unchanged.

Power, telecommunication, railways, roads, ports, industrial parks, urban infrastructure will qualify for ECBs upto $ 200 million under the infrastructure category.

Non-banking finance companies would be eligible to operate the rupee lending facility.

Borrowing costs have been pegged at 300,400 and 450 basis points above Libor for regular, infra and long term ECBs.


The rural development ministry has set up a national level committee to go into all aspects of consolidation of land holdings to reverse the decline in agricultural production as a result of fragmentation of farms.

Headed by the rural development secretary, the committee will also go into the various issues involved in updating of survey data on land ownership rights. 
A sub-committee has also been constituted under the chairmanship of Andhra Pradesh special chief secretary Shri P.V. Rao to assist the national committee on land consolidation.   It will devote specific attention to preparation of centrally sponsored scheme on consolidation of land holdings. 

Due chiefly to the existing inheritance laws requiring equal distribution of land and other property among all heirs, the agricultural farms are becoming smaller and smaller with the passage of each generation. Some of the holdings are reported to have become too small to operate even a bullock-drawn plough, let alone other farm machinery. This has been viewed as one of the major causes of low farm productivity in the country. The land resources department’s move to initiate steps for consolidation of holdings is aimed at removing this constraint. 


Housing finance companies (HFCs)  will be required to have a net owned fund (NOF) of Rs.5 crore to undertake insurance brokerage business unlike the non-banking finance companies (NBFCs) which need a Rs. 2 crore net owned funds to enter the sector.

NHB plans to keep the net non-performing assets (NPAs) level at five per cent as a criterion for HFC’s entry into the insurance sector. On the capital adequacy front, the threshold limit is likely to be kept at 12 per cent.

HFCs with a NOF of not less than Rs. 500 crore will be allowed to float insurance venture offering 26 per cent stake to an overseas partner.

The apex housing bank is likely to fix a much lower net owned fund limit for those HFCs which are planning to enter the insurance business as investors.


The government on July 28 unveiled its national agriculture policy, seeking to create a legal environment for leasing out private land for agri-business and dismantling all controls that hinder maximisation of farm income as follows :

  • Leasing of private land to be allowed for increasing size of holdings and agri-business.
  • Contract farming by private sector to be encouraged.
  • Futures trading to be allowed in all important agricultural products.
  • Agriculture to be kept outside the taxation network.
  • Agricultural growth target pegged at above four per cent.
  • Farmers to get loans against pledging of produce.
  • Farm credit system to be revamped.
  • Structural reforms in co-operative sector to end bureaucratic control and political interference.
  • Agro-exports to be encouraged.

The government will soon set up Lok Adalats to clear non-performing assets of public sector banks where the loan amounts are less than Rs. 10 lakh. Finance Minister, Shri Yashwant Sinha said in the Lok Sabha on 04.08.2000 that these comprise 20 per cent of the total NPAs of the public sector banks in the country.  This is in line with the government’s policy to tell the small defaulters “we are ready to settle the loans”, he said.


Finance Minister Shri Yashwant Sinha on July 8, 2000 said government will move definitively and mercilessly against wilful defaulters of bank loans which may result in imprisonment and attachment of property. “No case of wilful default (of bank loans) will escape the notice and I will hold bank Chairman personally responsible for any delay in filing a suit”, Shri Sinha said expressing government’s commitment to recover the whopping Rs. 52,000 crore non-performing assets of public sector banks. 

The government would also set up an agency for exchange of information which would help in preventing a bank loan defaulter seeking fresh loans from other banks. In this connection the Reserve Bank of India would soon formulate a “non discriminatory and non discretionary” arrangement for recovery of bad debts. 


The government is reportedly finalising a three-point action plan to revitalise weak public sector banks. The action plan would include an attractive voluntary retirement scheme (VRS) and recapitalisation of the three weak banks - UCO Bank, Indian Bank and United Bank of India.

A separate financial reconstruction authority for each of the weak banks is proposed to be set up and RBI has been  working out the details of a legislation for this. IRDA would issue the guidelines for setting up private insurance companies shortly.