Want growth? Open doors to FDI, Govt told

The radical recommendations—meant to put India back on the global investment map—came from the Steering Group on Foreign Direct Investment (FDI), headed by Planning Commission Member N K Singh.

It includes Secretaries from the Ministries of Finance, Commerce and External Affairs; the RBI’s Deputy Governor, Chief Secretaries of UP, Andhra Pradesh, West Bengal and chiefs of corporate bodies CII and FICCI. Their report was presented to Prime Minister Atal Behari Vajpayee here today.

The proposal to hike FDI limits in the petroleum sector is significant coming as it does on the eve of the crucial Cabinet meeting which is expected to take a decision on the privatisation of public sector oil companies Hindustan Petroleum (HPCL) and Bharat Petroleum (BPCL).

Receiving the report, Vajpayee said: ‘‘Nothwithstanding significant increases recently, in comparison, however, to our potential and in relation to other emerging markets, our overall foreign investment still remains modest.’’ He said the report would be considered by the Group of Ministers on FDI shortly.

The N K Singh Committee report has recommended that sectoral caps on oil refineries be increased from 26 per cent to 100 per cent, oil marketing from 74 per cent to 100 per cent, petroleum exploration from 51 per cent to 100 per cent, airports from 74 per cent to 100 per cent, civil aviation from 40 per cent to 49 per cent (including granting of permission to foreign airlines).

The Committee has also recommended hiking the FDI limit in basic and mobile telephony from 49 per cent to 74 per cent, insurance from 26 per cent to 49 per cent, plantations (other than tea) from zero to 49 per cent and the small-scale sector from 24 to 49 per cent.

The committee has highlighted two sectors where protection is still required — tea plantations and real estate. It has recommended lowering the FDI cap in tea plantation to 49 per cent from the existing 100 per cent level. It has also favouring retaining the ban on FDI in retail trade. ‘‘The retail sector in India is dispersed, wide-spread, labour intensive and disorganised. In the light of this it is not thought desirable at present to lift the ban on FDI in retail trade,’’ the report has stated.

The banking and financial sectors have been chosed for greater FDI, up from the present 49 per cent to 100 per cent while the isurance sector has been recommended for a hike in FDI ceiling from 26 to 49 per cent.

FDI in the real-estate sector where none is presently allowed, is recommended for a 100 per cent FDI limit. ‘‘Automatic 100 per cent equity could be allowed in industrial, commercial and residential complexes (covering one acre or more) while below this size and in the case of individual properties, FDI could come through the FIPB route,’’ the report has stated.

Referring to the present FDI limit of 20 per cent in the direct-to-home broadcast, the committee has said, ‘‘Given the current 20 per cent foreign equity limit, foreign companies have little or no interest in entering this sector. This limit should be raised to 49 per cent so that foreign companies can enter.’’ At a press conference after presenting the report, Planning Commission Deputy Chairman K C Pant said that the country was looking at ambitious FDI inflows of $8-billion dollar annually during the 10th plan.

Apart from its recommendations on removal of restrictions on sectoral caps, the Committee has also made important recommendations for empowering the Foreign Investment Promotion Board (FIPB) and the Foreign Investment Implementation Authority (FIIA) to expedite the process of administrative and policy approvals.

The report has suggested that the foreign investment promotion council be reformed and involve minister-level functionaries who can interact with Fortune-500 companies.

Singh said: ‘‘We have dealt with the fact that unlike other emerging economies, FDI has not played an important role in the disinvestment process mainly due to the absence of credible regulatory framework in various sectors.’’

To increase the accountability of various government departments in attracting FDI, the report has suggested that the aggregate FDI target for the 10th Plan should be disaggregated in terms of sectors and relevant administrative ministries.

It has also recommended that special economic zones (SEZ) should be developed as the most competitive destination for export related FDI in the world, by simplifying laws, rules, administrative procedures and reducing red tape to the levels found in China.