Panel for higher FDI cap in retail, telecom, defence

To suggest simplification of policy structure by reducing the layers of limits

A government panel on Tuesday recommended increasing the foreign direct investment (FDI) cap in the defence, telecom, multi-brand retail, and insurance and pension sectors. It also suggested simplifying the FDI policy structure by reducing the layers of caps.

“We have submitted the report to the finance minister. Action will be taken on it, as and when the government decides. Finally, they will take a call. This is just our recommendation,” Economic Affairs Secretary Arvind Mayaram told reporters.

Prime Minister Manmohan Singh is likely to discuss these proposals with senior Cabinet ministers on July 1.

The committee has recommended raising the FDI limit in the defence sector from 26 per cent to 49 per cent. It also suggested increasing the FDI cap in telecom from 74 per cent to 100 per cent. Soon, DIPP could move a Cabinet note on increasing FDI cap in these sectors.

The panel also pitched for raising the FDI cap in the insurance and pension sector. Though the Cabinet has already approved a rise in the FDI cap in this segment to 49 per cent, Bills to that effect are pending in Parliament.

To make the multi-brand retail segment more attractive to foreign investors, the panel suggested the FDI limit in this space be raised from 51 per cent to 74 per cent. The committee also recommended doing away the 26 per cent FDI cap and keeping the lowest cap at 49 per cent. This means for  the media sector, the FDI cap may be raised from the current 26 per cent to 49 per cent.  It said except in some sensitive sectors, FDI should be allowed under the approval route, not through the Foreign Investment Promotion Board.

For single-brand retail, the panel suggested 49 per cent FDI under the automatic route, against the current 100 per cent under the approval route. In the case of the pharmaceuticals sector, it recommended 49 per cent FDI under the automatic route, against 100 per cent under the government approval route in brownfield projects.

Higher FDI would help finance the Centre’s widening current account deficit, estimated at five per cent of gross domestic product for 2012-13 against the Reserve Bank of India’s comfort level of 2.5 per cent.