The government move to relax FDI norms in various sectors will bring fresh investments into the country and boost economic growth, industry bodies said on Tuesday.
The decision to shore up foreign direct investment (FDI) in 12 sectors including telecom and insurance indicates that the much-needed reforms are underway to boost India's growth, they said.
"We welcome the move and it indicates that reforms are underway. Large number of sectors have either seen an increased in FDI cap or moved under the automatic route from the Foreign Investment Promotion Board (FIPB) approval," Ficci president Naina Lal Kidwai said.
A high-level meeting, chaired by Prime Minister Manmohan Singh, today approved raising FDI limit in the telecom sector to 100%. In insurance, it raised the sectoral FDI cap from 26% to 49% under the automatic route.
In case of PSU oil refineries, commodity exchanges, power exchanges, stock exchanges and clearing corporations, FDI will be allowed up to 49% under automatic route, as against current routing of the investment through the Foreign Investment Promotion Board.
Another industry body Assocham said the decision to allow 100% FDI in telecom will surely help the sector as it will lead to some overseas investors taking interests in the debt-ridden companies.
Kidwai said: "The reforms demonstrate that there is a desire to make process easier and attract fresh investments. All these decisions are positive and there is an indication that other areas would also be considered."
Although the government has kept the FDI cap in defence sector unchanged at 26%, higher foreign investment in 'state-of-the-art' technology manufacturing will now be considered by the Cabinet Committee on Security.
"The government should consider raising the foreign investment limit to 49% in defence sector, through automatic route, as this would bring in technology and help in setting up manufacturing base in the country," Assocham secretary general DS Rawat said.
However, he said, these reforms should be followed by easy rules on the mergers and acquisitions so that much needed consolidation in the sector is facilitated.
Cheering the decision on allowing 49% FDI power exchanges, the companies said the move will boost overseas investment in the electricity trading vertical.
"It is a welcome move and in this liberalised scenario we see participation from global exchanges," Pawan Kumar Agarwal, vice president and chief financial officer Power Exchange India Ltd (PXIL) told PTI.
Devi Raj Singh Executive Director Ernst & Young said: "This decision will have a positive impact on power production in the country as there will be more buyers for the electricity generated."
PXIL and IEX are the two power trading exchanges in the country. PTC is in bilateral power trade market as well as on the power exchange.