More easing of FDI caps likely,defence on the radar

In a bid to keep up investment inflows,the government plans to hike foreign investment limits in key sectors,including defence

Written by ENS Economic Bureau | New Delhi | Published: April 19, 2013 1:28 am

In a bid to keep up investment inflows,the government plans to hike foreign investment limits in key sectors,including defence.

Finance minister P Chidambaram assured investors in New York that a review of the foreign direct investment (FDI) sectoral caps was on the cards,with the government having already set up a committee which held its first meeting earlier this month,which is likely to meet again soon. “Let the report (of the FDI committee) come and I feel many caps deserve to be either relaxed or removed,” he was quoted as saying by the PTI in his address to international investors in New York.

Meanwhile,commerce minister Anand Sharma said here on Thursday that he “strongly” favoured raising FDI ceiling in the defence sector so as to boost manufacturing locally. Announcing the annual supplement of the Foreign Trade Policy,Sharma also made a case for increasing the FDI cap in insurance from 26 per cent to 49 per cent,a bill for which is pending in the Rajya Sabha since 2008. “We will be looking at other sectors in particular to give a thrust to advance manufacturing. We have strongly favoured increase in FDI cap in the defence production so that we increase defence manufacturing in India. These are under active consideration because these are sensitive decisions which will require inter-ministerial reflection,” he said. Currently,only 26 per cent FDI is permitted in the defence production,which the department of industrial policy and promotion (DIPP) is proposing to raise to 49 per cent.

Chidambaram,in New York,justified the need to review FDI sectoral caps by saying: “There were many caps imposed at different points in time. We have set up a committee to go into the nature of each cap and ask a question: Has the cap served a purpose? Does it continue to serve a purpose? If it does,let the cap continue. If it does not,then the cap should either be relaxed or removed”.

The government has set up a committee under economic affairs secretary Arvind Mayaram to review the FDI norms in line with the change in definition of FDI. Currently,there are various sectors where FDI limit is way below 100 per cent. While in multi-brand retail it is 51 per cent,in telecom and banking it is 74 per cent. While the Cabinet has approved hiking FDI limit in insurance and pension sectors to 49 per cent,a bill to that effect is pending in Parliament. Chidambaram,according to the PTI report,said the insurance bill,which seeks to raise FDI cap to 49 per cent from 26 per cent,is in Parliament and he had discussions with Leader of Opposition of both the Houses.

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