At present, FDI is allowed either through automatic route or by approval of the Foreign Investment Promotion Board.
While in telecom up to 49% will be allowed under the automatic route, the balance will be through FIPB’s approval. For courier services, FDI up to 100% will be allowed under the automatic route.
In defence, 26% FDI through the FIPB route has been maintained for state-of-the-art technologies. The increase in defence FDI will be on a case-to-case basis and will take place after consent from the Cabinet Committee on Security .
The move comes despite opposition from Defence Minister AK Antony. Anthony, who has consistently pitched for growth of domestic defence industry, feels allowing foreign companies to set up manufacturing facilities in India will hamper growth of indigenous research and design.
These crucial reform decision were taken at a meeting chaired by Prime Minister Manmohan Singh along with 11 senior Cabinet ministers in New Delhi. Finance Minister P Chidambaram, Defence Minister AK Antony, Commerce and Industry Minister Anand Sharma and Telecom Minister Kapil Sibal were present at the meeting. The decisions taken today will required Cabinet's nod.
These were based on recommendations of the Mayaram Committee, which had suggested relaxing investment caps in about 20 sectors. However, the government has approved only 13.
Meanwhile, FDI in public sector gas refineries, commodity exchanges, power trading, stock exchanges and clearing corporations will be allowed up to 49% under the automatic route as against current routing of investment through FIPB.
For petroleum and natural gas, the government has maintained its sectoral cap at 49%.
In a boost to the power sector, the government has allowed FDI in power exchanges through the automatic route. This means that no FIPB approval will have to be sought. However, it has retained the cap at 49%.
Foreign direct investment in the insurance space has been capped at 49% from 26% earlier. The same is the case for asset reconstruction companies and single-brand retail. But Sharma clarified that the FDI limit from 49% to 100% can be raised through the FIPB route.
In credit information firms, 74% FDI under the automatic route will be allowed.
The tea sector too had some reason to cheer as the condition of divestment to Indian partners has been deleted.
Civil aviation, airports, brownfield pharma, multi-brand retail and media sector were left short-changed as no change was made in their respective caps. However, Sharma offered a glimmer of hope by saying some decisions will be taken later.
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