Mayaram panel for FDI hike across several sectors

In a proposal for the overhaul of India's foreign direct investment (FDI) regime, a key panel led by economic affairs secretary Arvind Mayaram has called for increasing the foreign investment caps across almost all sectors, including defence and telecom, and allowing automatic approval to proposals entailing 49 per cent foreign equity infusion.

The committee had been set up earlier this year, by finance minister P Chidambaram to clarify the definition of FDI and foreign institutional investors as also to review sectoral limits for foreign investment. The report, aimed at boosting capital flows could help in financing the sharply higher current account deficit, and calls for increasing the foreign investment cap in multi-brand retail to 74 per cent from the existing limit of 51 per cent.

The Financial Express, quoted a person familiar with the development as saying, if a company had to meet the criteria for back-end infrastructure under the FDI in multi-brand retail norms, then a higher investment limit could help, pointing out that the government was yet to receive even one concrete proposal in the multi-brand retail segment.

"We have submitted the report to the finance minister. Action will be taken on it as and when the government decides. Policy is with DIPP so finally they will take a call. This is just our recommendation," Mayaram told reporters in New Delhi on Tuesday.

The committee has also strongly pitched for scrapping FDI caps in a number of sectors, including non-scheduled air transport, ground handling at airports, satellites, private security agencies and internet service providers (ISPs) to attract capital flows that were needed to finance the current account deficit and bolster the rupee, which hit a new low yesterday.

According to commentators, the DIPP, the administrative ministry in charge of FDI policy, would now have to implement the Mayaram Committee report. Key ministers, notably finance minister P Chidambaram and commerce minister Anand Sharma, are expected to meet in the first week of July to take a final call on the plan.

Following clearance from key ministers, the proposal would come up to the cabinet.

According to The Economic Times, the committee committee had suggested lifting caps to 49 per cent from 26 per cent in a number of sectors and doing away with mandatory FIPB clearance in these industries.

The government was also actively discussing hiking FDI in defence production to 49 per cent and in telecom to 100 per cent.

The RBI was also in favour of a clear distinction between sectors in which the government felt Indian control was needed while the rest could be freed up totally.

The finance ministry was pushing for a complete rejig of the FDI policy framework as part of the current reforms drive to boost FDI flows that shrunk by 34 per cent to $22 billion in 2012-13.

Sectoral caps are currently at four levels, - 26 per cent, 49 per cent, 51 per cent and 74 per cent, which the panel has recommended sectoral caps at three levels – 49 per cent, 74 per cent and 100 per cent.