The cabinet gave its approval at a meeting held here on Wednesday after discussing a proposal sent by the industry and surface transport ministries.

According to existing norms, foreign equity up to 74 per cent in the road and port sector was allowed under the automatic approval route. This acted as an impediment to foreign direct investment (FDI) inflow into the sectors.

The approval will be on the same lines as the 100 per cent foreign equity in power sector, subject to a ceiling of Rs 1,500 crore. In effect, it will mean that FDI proposals in the road and port sectors involving an expenditure up to Rs 1,500 crore will not be referred to the Foreign Investment Promotion Board (FIPB).

In terms of the provisions of the existingindustrial policy, the Reserve Bank can accord automatic approvals to foreign direct investment involving foreign equity up to 50 per cent for three activities in the mining sector, up to 51 per cent for 13 categories of industries, up to 74 per cent for nine categories of industries and up to 100 per cent in the power sector, subject to a ceiling of Rs 1,500 crore.

Both the industry and surface transport ministries concurred that further liberalisation in parameters for automatic approvals in foreign collaboration in roads and ports would result in more investment into the sector.

A number of countries, including Singapore and Malaysia, have shown keen interests in undertaking road and port construction works in India. Policy restrictions were pouring cold water over the quantum of investments, analysts say.

While approving further liberalisation in the roads and ports sector, the government made it clear that construction and maintenance of rail-beds, non-vehicular bridges, non-vehicular tunnels,pipelines, rope-ways and runways would continue to be eligible for automatic approvals up to 74 per cent.

It may be recalled that just prior to the cabinet approval, the advisory council's sub-group on infrastructure headed by Ratan Tata recommended sweeping policy initiatives in the roads and ports sector.

Indian entrepreneurs have been coy about investing in roads and ports either on their own or through joint ventures. Allowing foreign investors 100 per cent equity in these and related areas gives them ownership freedom to pursue projects. Conceivably, foreign entrepreneurs will be able to get cheap debt funding from abroad.

The difficult issue will be to provide them land to build upon. This is a state subject. Private owners will have to be made to vacate land. They will also have to be paid a compensation. Who will bell the cat? Besides, user charges for roads, bridges, vehicular tunnels and so on are a must for project viability. Even if the charges are modest, there will have to be a mechanismto collect the levies in the last resort with the backing of law enforcement agencies. It will be easier for foreign investors to move into port and harbour development.