Government further eases FDI limits in over a dozen sectors

Giving a booster dose to the ailing economy and the falling rupee, Prime Minister Manmohan Singh opened the foreign direct investment (FDI) gates in 13 sectors. In a high-level meeting chaired by Prime Minister with Ministers of Defence, Finance, Petroleum, Food and Consumer Affairs, Power and Home the decision was taken to bolster investment and growth.

FDI cap in telecom (basic and cellular service) has been raised to 100 percent from 74 percent, up to 49 percent through automatic route and beyond 49 percent to 100 percent will be through the foreign investment promotion board. FDI limit in insurance sector has been raised to 49 percent from present 26 percent, subject to Parliament approval. FDI up to 49 percent has been allowed in petroleum refining and power exchanges under automatic route, from earlier approval route. The government also raised FDI in asset reconstruction companies to 100 percent from 74 percent, of this up to 49 percent will be under automatic route, further up to 49 percent has been allowed in stock exchanges, depositories allowed under automatic route, in courier services up to 100 percent through automatic route. In tea plantation up to 49 percent through automatic route and 49-100 percent through FIPB route, while the limit has been increased in credit information companies to 74 percent from 49 percent

Government also allowed 100 percent FDI in single brand retail with 49 percent through automatic route and 49-100 percent through FIPB, up to 49 percent has been allowed in petroleum refining under automatic route, from earlier approval route. FDI limit has been increased in credit information companies to 74 percent from 49 percent

However, some of the sectors like, civil aviation, airport, media, multi-brand retail and brownfield (existing firms) pharmaceuticals will have to wait, as there was no change in 49 percent FDI limit in civil aviation, while FDI cap in defence production will remain unchanged at 26 percent, higher investment may be considered in state-of-the-art technology production by CCS.

A Cabinet note will be moved immediately and the next meeting of the Cabinet will take up all these decisions. Commerce and Industry Minister Anand Sharma said that “the FDI cap in defence sector remained unchanged at 26 percent; higher limits of foreign investments in 'state-of-the-art' technology manufacturing will be considered by the Cabinet Committee on Security”

There has been constant clamor from the industry and different ministries that FDI limit should be increased in different sectors in view of the declining trend in the FDI inflows, which in 2012-13 aggregated $ 22.42 billion, much lower compared to $36.50 billion in 2011-12. The decisions taken were based on recommendations of Mayaram Committee which had suggested relaxing investment caps in about 20 sectors, the Mayaram committee has recommended at least 49% FDI in most sectors through the automatic route and higher FDI limit in many sectors such as multi-brand retail, telecom, and civil aviation in a bid to attract stable foreign inflows after CAD touched an all-time high of 4.8% of GDP last fiscal.