Govt may raise FDI cap for some sectors

Finance Minister says many caps can be removed or certainly relaxed

Continuing the reform push, the government is considering further liberalising foreign-investment cap in various sectors, Finance Minister P Chidambaram said today.

"Many caps can be removed or certainly relaxed ... . Some of these caps are completely irrelevant in terms of the changed situation," he told a news channel.

The government had in September last year liberalised norms for foreign direct investment (FDI) in various sectors, including retail and aviation. "We need to clear some of the cobwebs accumulated in India and go out and woo specific business houses," he said.

Currently, there are various sectors where FDI limit is below 100 per cent. While in multi-brand retail it is 51 per cent, in telecom and banking it is 74 per cent. While the Cabinet has approved hiking FDI limit in insurance and pension sector to 49 per cent, a Bill to that effect is pending in the Parliament.

Further, in commodity exchanges, asset-reconstruction companies, credit-information companies and private security agencies, up to 49 per cent FDI is allowed.

In his Budget this year, Chidambaram had highlighted the need to attract foreign funds to finance the rising current account deficit (CAD) - the difference between the inflow and outflow of foreign currency - which is at $75 billion.

CAD was 4.6 per cent of GDP in April-September 2012 and is estimated to be as high as 5 per cent for the year ending March 31.

Besides, the government has taken several steps to attract foreign funds into the country by liberalising norms for external commercial borrowing (ECBs). It has also announced steps to come up with the globally accepted definition of FDI and portfolio investment, according to which a foreign investor's stake above 10 per cent in a company would be treated as FDI.