FDI cap in telecom removed

The Cabinet has approved doing away with the foreign direct investment (FDI) caps in the telecom sector, as well as for asset reconstruction companies. In defence production, too, the FDI cap was removed, subject to the approval of the Cabinet Committee on Security. The government hopes the moves would renew the interest of foreign investors, help finance India's widening current account deficit and arrest the rupee's slide against the dollar.

These decisions were already approved in principle at a meeting of the prime minister and senior ministers last month.

The FDI cap on credit information companies would be raised from 49 per cent to 74 per cent; all of this might come through the automatic route, against the current Foreign Investment Promotion Board (FIPB) route, Commerce & Industry Minister Anand Sharma told reporters after the Cabinet meeting.

"In the backdrop of the fairly modest FDI inflows over the last year and the lack of growth in gross domestic capital formation, FDI ceilings and entry routes have been liberalised with a view to stimulating FDI inflows into the country, thereby contributing to growth of investment, incomes and employment," said an official statement.

Economic Affairs Secretary Arvind Mayaram, head of the committee on whose recommendations the Cabinet's decisions were based, expressed hope FDI inflows would increase after these decisions.

The Cabinet also decided to ease FDI norms in other sectors, including single-brand retail. However, no decision was taken on the Mayaram panel's recommendations to raise the FDI cap in news and media (news and current affairs) from 26 per cent to 49 per cent, increase the limit on stake foreign airlines can acquire in domestic ones from 49 per cent to 74 per cent and raise the FDI limit in multi-brand retail from 51 per cent to 74 per cent.

In defence production, it has been left to the Cabinet Committee on Security to decide which FDI proposals would bring state-of-the-art technology and could, therefore, be accepted, even beyond 26 per cent, on a case-by-case basis. Earlier, Defence Minister A K Antony had opposed the Mayaram panel's recommendation to raise FDI in this segment from 26 per cent to 49 per cent.

Currently, though the FDI cap on single-brand retail is 100 per cent, it has to come through the FIPB route. Now, however, 49 per cent of this could come through the automatic route. However, the retailer would have to specify product categories to the Reserve Bank of India and seek fresh permission for any addition. Also, instead of a single foreign entity, a group of entities could together set up shop in the segment.

The FDI cap for petroleum and natural gas refineries has been retained at 49 per cent. However, the route in the segment has been changed from FIPB to automatic.

The FDI cap in commodity exchanges, power exchanges, stock exchanges, depositories and clearing houses has also been retained at 49 per cent (26 per cent FDI and 23 per cent foreign institutional investors). However, the approval process has been eased---so far, these cases had to be approved by FIPB; now, it could be through the automatic route.

At Thursday's meeting, it was also decided the clause stating tea and other plantation companies have to divest 26 per cent equity in favour of Indians within five years would be done away with. In this sector, 100 per cent FDI is allowed. Now, 49 per cent of this could come through the automatic route. FDI beyond 49 per cent would need FIPB approval.

For courier services, which don't have an FDI cap, all such investment could now come through the automatic route.