The Centre is likely to allow domestic companies to buy farm land abroad.

Government sources said the idea was to allow Indian companies with a sizeable presence in the food processing and agro-based industries to emerge as major players in the international arena, which is now dominated by companies from the US and European Union.

However, to allow companies to invest in farm land abroad, the government has to further relax the limit on capital account convertibility. At present, the government only permits corporates to set up overseas offices or acquire immovable property for business and staff residential premises.

The idea has been mooted by the commerce ministry and will require approval by the finance ministry as well as the Reserve Bank of India. As per the proposal, even individuals should be allowed to buy land abroad.

Currently, Indian investment policies do not allow foreign companies to buy agricultural land. However, foreign firms are allowed to invest in real estate for building integrated townships.

The proposal is based on the grounds that domestic companies often export farm produce to manufacturing bases abroad. If they can buy agricultural land abroad, their shipment costs will come down and they will become more competitive in the global food processing business.

This will also solve the problems faced by local companies in buying agricultural land in the country as most states are reluctant to relax land ceilings. Moreover, it will be cost effective since land is cheaper in many foreign countries.