This is an archive article published on August 7, 2014

Govt hikes FDI in defence to 49%, railway infra gets 100%

Cabinet gives effect to key policy measure announced in Budget 2014-15.

3 min readNew DelhiAug 7, 2014 01:22 AM IST First published on: Aug 7, 2014 at 01:22 AM IST

The government on Wednesday relaxed the norms for foreign direct investment (FDI) in defence and railway infrastructure, giving effect to two key policy measures announced in the Budget 2014-15, aimed at reviving the investment climate in the country.

A source privy to the development said that FDI up to 100 per cent would now be allowed in areas related to procurement of technology for the Railways.

“While the operations of the Railways will remain with the government, 100 per cent FDI will now be allowed in areas involving technology — setting up rapid transport systems and getting advanced signalling systems, for instance,” the source told The Indian Express.

Earlier, the department of industrial policy and promotion (DIPP) had proposed allowing 100 per cent FDI in areas including electrification, high-speed tracks, suburban corridors and dedicated freight line projects implemented under public-private partnership mode through automatic route. The aim was to help the modernisation and expansion of the Railways.

Currently, FDI is allowed only in mass rapid transport systems. A special purpose vehicle was proposed for FDI to provide last-mile connectivity to ports and mines.

In the defence production sector, the government has decided to raise the FDI limit from the current 26 per cent to 49 per cent. “Up to 49 per cent FDI will be allowed in defence through the government route. Beyond that, the Cabinet Committee on Security (CCS) will take a call on a case-to-case basis wherever state-of-the-art technology is involved,” the source said.

The decision to raise the FDI cap to 49 per cent was announced by finance and defence minister Arun Jaitley in his Budget speech. While the foreign original equipment manufacturers (OEMs) in the sector have been unhappy due to the FDI cap limiting their investments in the country, doubts have also been raised about whether OEMs would be keen on transfer of technology to their Indian partners with the 26 per cent FDI cap in place.

The DIPP had, in its earlier proposal, suggested raising the FDI cap in the defence sector up to 100 per cent. The proposal was to raise caps under three different categories — 49 per cent without technology transfer, up to 74 per cent with technology transfer and up to 100 per cent in case of state-of-the-art technology.

During the UPA-II regime, although the DIPP was keen to enhance the FDI cap from 26 per cent, it had been stonewalled by then defence minister AK Antony.

Following the opposition from within, the government had finally decided to increase FDI beyond 26 per cent on a “case-to-case basis after getting clearance from CCS and only in cases where there was transfer of state-of-the-art technology”.