NDA budget seen ushering in big time reforms

31 May 2014

The first budget of the Narendra Modi government, to be presented in the first fortnight of July, is expected to ring in big time reforms that will help revive investor sentiment and put the economy back on the higher growth path, according to official sources.

In the full budget for the current financial year, finance minister Arun Jaitley is widely expected to announce relaxation in foreign direct investment (FDI) limits in various sectors, including defence. He is also expected to announce measures to boost the primary market.

The budget is also expected to announce an early timeline for introduction of the goods and services tax (GST) and take measures to remove fears of foreign investors over retrospective taxation.

A note circulated by the Department of Industrial Policy and Promotion (DIPP) for inter-ministerial consultations, proposes three options: 49 per cent, 74 per cent and 100 per cent FDI in defence production.

Any final decision on the level of FDI in the various sectors, including defence, will, however, hinge on the perceptions of the various ministries and the general direction of the government.

Irrespective of the limit, clearance would, however, have to follow the Foreign Investment Promotion Board route, official sources pointed out.

Currently, FDI regulations prescribe a 26 per cent limit in almost all sectors of strategic importance. Any proposal for more than 26 per cent cleared by the FIPB is referred to the Cabinet Committee on Security, which looks into whether the proposal is likely to result in access to modern technology.

The BJP manifesto had promised to strengthen the Defence Research and Development Organisation (DRDO), while encouraging private sector participation and investment in the sector, including FDI in select defence industries, so as not to lose the technological initiatives in the sector.

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