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Govt Allows 100% FDI In Telecom, Raises Cap In 12 Sectors

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Opening the doors to shore up foreign investments, on 16 July, India relaxed foreign direct investment (FDI) rules in a broad swathe of industries including telecom, single brand retail and oil and gas in a bid to lure capital inflows, prop up a sliding currency and rev up growth. The government liberalised FDI limits in a dozen sectors, including allowing 100 per cent in telecom and higher limits in 'state-of-the-art' defence manufacturing, to boost the sagging economy.

The Foreign Direct Investment (FDI) cap for civil aviation was, however, left unchanged at 49 per cent.

The government of India gave in-principle approval to remove a foreign direct investment cap in the telecom sector while raising the limit to 49 per cent in defence production from existing 26 per cent with caveats. While the FDI cap in defence sector remained unchanged at 26 per cent, higher limits of foreign investments in 'state-of-the-art' technology manufacturing will be considered by the Cabinet Committee on Security, Commerce and Industry Minister Anand Sharma told reporters in New Delhi.

The decision was taken after Prime Minister Manmohan Singh held a meeting with senior Cabinet ministers, Commerce and Industry Minister Anand Sharma told reporters.

Finance minister P Chidambaram, defence minister AK Antony, commerce and industry minister Anand Sharma and telecom minister Kapil Sibal, were among those present at the meeting in New Delhi.

The government raised FDI in telecom to 100 per cent from 74 per cent. FDI over 49 per cent will have to be be cleared by the the Foreign Investment Promotion Board (FIPB).The move will allow companies such as Vodafone Group Plc, Telenor ASA and Sistema to operate in the country without requiring an Indian partner.
 
Despite opposition from defence minister AK Antony, it was Also decided to raise FDI in defence sector from 26 to 49 per cent. FDI till 26 per cent is to cleared via automatic route, and till 49 per cent via CCS route.

FDI in four areas — gas refineries, commodity exchanges, power trading and stock exchanges — to be through FIPB route while the existing 49 per cent FDI through FIPB route in petroleum refining has been changed to automatic route.

In power exchanges, 49 per cent FDI will now be through automatic route instead of FIPB route earlier. Similarly, 49 per cent FDI allowed in insurance sector will be via automatic route.

The FDI cap in asset reconstruction companies (ARCs) has been hiked to 100 per cent from 74 per cent. Of this, up to 49 per cent will be under automatic route and higher through FIPB.

In tea sector, condition of divestment to Indian partners deleted: Anand Sharma

In single brand retail, FDI upto 49 per cent will be under automatic route; beyond 49 per cent, it will be through FIPB route

No change of route in civil aviation sector. Some decisions on this may be taken later, said Sharma.

FDI cap in credit information companies has also been raised to 74 per cent from 49 per cent. While for FDI in multi-brand retail, decision is still under process, no decision was taken on the issue of FDI in media, said the commerce minister.

More Reforms In Little Time
Last week, while on a trip to the US to woo investors, Finance Minister P Chidambaram was told by The US Trade Representatives (USTR), Mike Froman; and David Cote, chairman and CEO of Honeywell, that though the Finance Minister, Commerce and Industry Minister Anand Sharma and the Planning Commission Deputy Chairperson, Montek Singh Ahluwalia, are committed to the reforms, "it is not happening much as they would like to".

Read Also: India Must Do More To Attract Large FDI: US Leaders
Read Also: Govt Looking Forward To More Reforms: Chidambaram

Chidambaram had also said on 13 June that The government plans to announce a review of the foreign direct investment limits as also coal pricing and allocation to power plants and gas pricing by the end of June, Finance Minister P. Chidambaram told reporters.
 
"I am looking forward to more reforms... I expect a number of decision in the next few days and weeks... In June, you can expect number of decisions taken and implemented that will accelerate reforms and spur investments in critical sectors," Chidambaram said.

Stalled Growth
India's once-bright economic outlook has been marred in recent months by stalling growth rates, high inflation and deficits in both the current accounts and the government budget.

Gross domestic product growth for the quarter ending in March was just 4.8 per cent, down from the 8-9 per cent level of just a few years ago.

Industrial production for the month of May fell by 1.6 per cent from the previous year, the latest sign that the country's economy is continuing to struggle.

The disappointing data did not deter finance minister P Chidambaram from predicting that the economy was likely to grow at 6 per cent or slightly more in the current fiscal year.

"This year, by all estimates, the growth rate will be 6% or slightly above. This is not a satisfactory level of growth," he said in Jaipur on Tuesday. He attributed the low increase in growth to slowdown in advanced economies.