India should raise FDI cap in key sectors: Ficci

Amid a striking slump in foreign inflows, the Indian government should seriously consider raising the cap on foreign direct investment (FDI) in single-brand retail, defence and insurance sector, industry body Ficci said today.

"To take India to the next level of reform, the government should actively consider increasing FDI cap in single-brand retail, insurance and defence sector," Ficci President Rajan Bharti Mittal, who is spearheading Indian CEOs delegation in Italy, told reporters here.

"FDI is short this year...It is expected to be down by 30-35% at the end of the current fiscal," he said.

India's FDI during January-November 2010 declined by 26% to $18.99 billion (Rs 86,921 crore).

Mittal, who is also the managing director of Bharti Enterprises, said the ceiling on FDI in defence sector should be raised to 49% from the current level of 26%.

Whereas in single-brand retail, he said it must be increased to 100%. At present 51% FDI is allowed in single-brand retail.

Even Italian investors, especially those from the fashion industry, are demanding 100% FDI in single-brand retail, he added.

Ficci also asked the government to allow multi-brand retail up to 51%, subject to investment in the back end.

On FDI in multi-brand retail, he said, "I don't know which way the policy is moving... My belief is if FDI opens up, many companies can come, including (global retail giants) Walmart, Tesco and Carrefour."

On slow growth of India-Italy trade, Mittal said: "Trade is slow because of high duties. Italians have raised their concern and I have spoken to the Commerce Minister to consider finding a middle path."

He also said that tourism, infrastructure and manufacturing are the key sectors where India can strongly engage with Italy in the coming years.

During January-November 2010, foreign institutional investors (FIIs) pumped in about $39 billion into the Indian economy.

"A major reason for the decline in inward FDI is reported to have been the environment-sensitive policies pursued, as manifested in the recent episodes in the mining sector, integrated township projects and construction of ports, which appear to have affected the investors sentiments," RBI had said in its Macroeconomic and Monetary Policy Development report.