Government mulls across-the-board hike in FDI limits to contain deficit

22 Jun 2013

1

The government is expected to further raise foreign investment limits to spur investment in sectors like insurance and banking, defence, multi-brand retail and telecommunications in the country, as per recommendations of a panel, as it struggles to tide over the current account deficit.

A committee under economic affairs secretary Arvind Mayaram set up by finance minister P Chidambaram to review the sectoral caps has suggested that the foreign direct investment (FDI) ceiling in the insurance sector, be raised to 49 per cent from 26 at present, but within the guidelines of the Insurance Regulatory and Development Authority (IRDA).

The panel has recommended further easing of foreign investment norms in the public sector banks by allowing FDI of up to 49 per cent in PSU banks under the automatic route as against 20 per cent with prior approval of the FIPB.

In the case of asset reconstruction companies (ARCs), the committee suggested that the FDI cap be increased to 100 per cent under the FIPB route and up to 49 per cent under the automatic route against the 74 per cent allowed under the FIPB route at present.

The panel, however, suggested that such investment should be in conformity with the Reserve Bank norms and a new definition of 'control' to be worked out by the government.

The committee has suggested the the FDI cap in the defence sector be raised to 49 per cent under the government approval route from 26 per cent at present.

The panel suggested that the FDI limit in multi-brand retail trade be raised to 74 per cent under the Foreign Investment Promotion Board (FIPB) route from 51 per cent at present and easing of norms for single-brand retail trade by easing norms for 49 per cent FDI under the automatic route.

While the government currently allows 100 per cent FDI under the approval route, the panel has suggested easing norms like sourcing, infrastructure etc, to make investments more attractive to foreign investors.

In the attractive telecom sector, the Mayaram panel has suggested allowing 100-per cent FDI under the FIPB route as against 74 per cent permitted at present. However, it suggested continuing the present 49 per cent FDI cap under the automatic route for the sector.

For the pharmaceuticals sector, where foreign companies are trying to make life for India's generic medicines difficult amidst domestic criticism over allowing multi-nationals to take control of the nation's pharmaceuticals industry, the committee has recommended 49 per cent FDI limit under the automatic route as against 100 per cent under the government approval route.

The relaxation in foreign investment caps is aimed at checking the widening CAD, which is estimated to be 6.7 per cent of the country's GDP in 2012-13.

In the insurance sector, the panel has suggested raising FDI cap to 49 per cent from 26 at present, but within the guidelines of the Insurance Regulatory and Development Authority (IRDA). It also recommended raising FDI limit in public sector banks to 49 per cent under the automatic route as against 20 per cent at present, with prior FIPB approval.

In the tea plantation sector, where the country has a comparative advantage at present, the committee proposes that FDI be allowed up to 49 per cent under the automatic route as against 100 per cent under the FIPB route.

In case of state-run petroleum refining companies, the committee has suggested allowing up to 49 per cent FDI under the automatic route against the current 49 per cent ceiling under the FIPB approval route.

The committee has suggested raising FDI cap in the print media to 49 per cent under the automatic route against the 26 per cent allowed under the approval route at present.

It also recommended allowing 49 per cent FDI in commodity and power exchanges under automatic route as against the FIPB route.

''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,'' said Mayaram.

The proposal has been circulated to the various ministries where it will be widely discussed during the first week of July.

Business History Videos

History of hovercraft Part 3...

Today I shall talk a bit more about the military plans for ...

By Kiron Kasbekar | Presenter: Kiron Kasbekar

History of hovercraft Part 2...

In this episode of our history of hovercraft, we shall exam...

By Kiron Kasbekar | Presenter: Kiron Kasbekar

History of Hovercraft Part 1...

If you’ve been a James Bond movie fan, you may recall seein...

By Kiron Kasbekar | Presenter: Kiron Kasbekar

History of Trams in India | ...

The video I am presenting to you is based on a script writt...

By Aniket Gupta | Presenter: Sheetal Gaikwad

view more