Enhancing the foreign direct investment cap in the defence sector may be one of the immediate steps taken by the new finance minister, who is set to join office later this week.
The department of industrial policy and promotion is, in fact, understood to be working on a Cabinet note to this end, hoping that the new government will approve the long-pending move.
Former defence minister AK Antony had refused any move to increase the FDI cap in the sector to 49 per cent from the current limit of 26 per cent. “We will take up the proposal as it will not only help our defence production but also bring down imports and keep the current account deficit in check,” said a finance ministry official. A bigger problem facing the sector is a ban on foreign institutional investors (FIIs), which was an unexpected consequence of changes in the FDI policy announced last year. The plan could get a boost given that Cabinet minister Arun Jaitley may hold the finance ministry portfolio along with additional charge of the key defence ministry.
“It is likely to be a temporary charge but the minister will have to balance his dual role, given that a large proportion of the non-plan spend is allocated to the defence ministry,” agreed Dhirendra Swarup, former finance secretary pointing out that it is an unusual move as the finance minister is usually not burdened with another critical ministry. Though former finance minister Pranab Mukherjee had held dual charge of external affairs and finance in 2009, officials point out that a more likely synergy could be between the ministries of finance and corporate affairs that were clubbed together in the previous NDA government as well.
“Corporate affairs was at one point also part of the ministry of law but it is more related to the area of finance and combining these would be a wise decision,” said a former officer with the ministry.
Though an official announcement is awaited, such a merger would be in tandem with Prime Minister Narendra Modi’s decision to revamp government functioning by merging related ministries.
Also the lack of clarity on the structure of the Planning Commission could pose an additional challenge for the new finance minister who would be faced with the preparation of a Rs 17 lakh crore Budget in just about a month’s time. The Planning Commission acts as an adviser to the finance ministry in finalising plan schemes and expenditure.
“The finance minister’s main priority will be the passing of the Union Budget, which is likely to be done by July,” said KM Chandrasekhar, former Cabinet secretary at the Union who previously headed the revenue department.
But on the flip side, Budget preparations could be aided by the smaller size of the Cabinet, which could mean less deliberations and lobbying by ministries for allocations and schemes.
“No matter the size of the Cabinet, the finance minister has a special status and a standalone position,” said Chandrasekhar. Merger of ministries would also create synergies across sectors such as finance, industry, small and medium enterprises , electronics and labour and help the new government fulfill its agenda of boosting manufacturing and job creation. The sector contributed just 14.3 per cent to the economy in the third quarter of FY 14 and data on gross domestic product for FY 14 to be released later this week will give a clearer picture on the state of affairs.
“For any recovery in the economy this fiscal, manufacturing and industry will certainly play a key role, especially as farm sector growth may be subdued,” said a senior official, adding that it is one of the key agenda issues and will be dealt with in the Budget as well.