India Revises FDI Cap, Allows 100% In Telecom, 49% In Insurance

NEW DELHI (TIP): The Centre on July 16 decided to revise existing caps in key infrastructure sectors such as telecom, retail, insurance and sensitive defence sector in an attempt to rejuvenate sagging foreign direct investment (FDI). At a meeting of senior Cabinet ministers chaired by Prime Minister Manmohan Singh here, the decision to give a broad policy directive took into account the reservation expressed by Defence Minister AK Antony, who has been opposed to an across-the-board hike in FDI from the present 26 per cent, but is not against considering a higher cap on a case-tocase basis.

Foreign investment in defence, which was being pushed vigorously by Commerce Minister Anand Sharma, will now be allowed for state-of-the art technology in defence production. The rider: it will have to be cleared by the Cabinet Committee on Security, with Sharma insisting that no limit has been prescribed. The Commerce Minister said the decisions were aimed to boost the economy and increase foreign investment in the country.

He said they were arrived at through unanimous consensus and discussions with the ministries concerned. “We (India) remain one of the first three favoured destinations for FDI. Doing better than last year,” Sharma said, adding that the country received over $290 billion FDI over the last nine years and the inflows in the first quarter of the current financial years has seen a 25 per cent increase over last year.

According to available data, FDI inflows in 2012-13 aggregated $22.42 billion, a decline from $36.50 billion in the previous year. The Centre’s push to raise the FDI ceiling is aimed at making India a more attractive destination for overseas investments and bridge the widening current account deficit. The deficit has been estimated at 5 per cent of gross domestic product (GDP) in 2012-13, as against the Reserve Bank of India’s comfort level of 2.5 per cent.

The Department of Industrial Policy and Promotion (DIPP) that has been preparing the ground for the change in FDI policy, made a presentation before the meeting attended by ministers of Defence, Finance, Petroleum, Food and Civil Supplies and Minister of State of Power (Independent Charge), Sharma said. As for FDI in media, he said no view had been taken.

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Information and Broadcasting Minister Manish Tewari had yesterday said the ministry had decided to seek the views of the TRAI and the Press Council of India on whether to increase the cap in print and electronic medium to 49 per cent under the automatic route. While FDI in telecom has been raised to 100 per cent from the existing 74 per cent, there has been a change in approval route.

Up to 49 per cent FDI will be approved through automatic route, but investment above it will require clearance by the Foreign Investment Promotion Board (FIPB). In the insurance sector, the government decided to raise the limit from the current 26 per cent to 49 per cent under the automatic route. In single-brand retail, where 100 per cent FDI was allowed in November 2011, 49 per cent of it will be now allowed under automatic route and the rest through FIPB.

In the case of petroleum and natural gas refineries, the cap remains at 49 per cent, but it will now be allowed under automatic route as will the case of commodity exchanges, power trading and stock exchanges clearances.

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