When finalised, the policy will have wide-ranging ramifications as holding companies of multinational firms may not have to seek permission of the Foreign Investment Promotion Board (FIPB) when they make downstream investments in the country.

"We are formulating a policy that may allow those companies already armed with an in-principle clearance to not seek FIPB approval when they go in for downstream investments, and therefore permit automatic direct investment in these ventures," industry ministry sources said.

As per the policy guidelines laid down on foreign direct investment, holding companies wholly owned by multinationals need FIPB's permission when they set up downstream ventures or pump in funds.

The industry ministry has initiated an exercise to formulate a policy, the test case of which is a proposal of multinational British Gas, which was taken upat the FIPB meeting on Saturday. The company has sought automatic clearance for further downstream investment to increase its product range as well as to be engaged in consultancy.

The government is of the view that such multinationals have much credibility and anyway have an in-principle clearance of the FIPB when they set up their holding companies in the country. Therefore, to save time, such companies may not seek the approval of the FIPB again as it adds to delay in investments.

Sources said the policy may stipulate that foreign holding companies would have to merely inform the FIPB when they go ahead with these downstream ventures. It would lay down parameters of investments and would cover all sectors.

Significantly, FIPB decided to defer a decision on the proposal of oil and gas major British Gas. Sources said the matter may be taken up by the core group of secretaries later on.

It is pointed out that since there is automatic clearance for certain sectors up to 74 per cent and in other sectorsup to 51 per cent, it may be allowed for foreign holding companies as well.

"Also, a holding company has become like an Indian company over the years. So we are actively considering the proposal of British Gas," government sources said.

"The government is keen to cut down delays and red-tape, which are possible hindrances to these foreign companies so that they are allowed to go in for automatic direct investment in their downstream ventures," sources said.