PM calls for ministerial meeting on July 1 to review reforms

Prime Minister Manmohan Singh has called a meeting to review economic reform, including the issue of raising the foreign direct investment (FDI) cap on July 1.

All ministers, whose response is awaited on raising FDI caps, including defence, telecom and pharma, have been asked to attend.

Several invitees have cancelled prior engagements to ensure they are in the capital for the meeting.

Last week, Finance Minister P Chidambaram had said at a press conference that raising FDI in various sectors, easier entry norms for portfolio investors, a framework to set the price of coal and gas and allocate coal mines were among the reforms the government would roll out in the coming days, rather than weeks.

Ahead of his week-long tour of half a dozen foreign countries, Commerce and Industries minister Anand Sharma (who return to India at the end of June) had said he would speak to Defence Minister A K Antony to persuade him as to why FDI cap in defence should be raised to 49, even 51 per cent.

Defence presents an intractable problem because the FDI threshold is so low (26 per cent) and the level of offsets is so high.

Foreign manufacturers have repeatedly asked for a higher level of investment autonomy, so they can set up partially-owned, if not fully-owned, manufacturing facilities in India which will circumvent the offset issue and provide employment as well as a chance for the Indian defence industry to collaborate with foreign principals.

The defence minister's belief is case by case permission for projects with 100 per cent FDI has been allowed in the past. So, there is no need to raise FDI cap. He believes India must never allow itself to be subjected to the kind of political exclusion this country saw in the wake of the 1998 nuclear tests when aircraft and other equipment could not even be serviced because of Western sanctions. It was a curtailment of sovereignty and it should never be countenanced.

There is the other highly volatile issue of Defence Public Sector Units like the Ordnance Factories Board which will protest if their monopoly is touched.

Government officials say if the order of investment by western nations is high enough, they will be most reluctant to impose sanctions in future. And public sector defence units should be shut down if they are inefficient.

The defence minister baulks at the latter proposition, but has said he would "examine" the proposal to raise FDI cap.