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HindustanTimes Sat,30 Aug 2014

New FDI rules: as rupee falters, govt courts foreign investors

Gaurav Choudhury , Hindustan Times  New Delhi, June 18, 2013
First Published: 21:02 IST(18/6/2013) | Last Updated: 02:34 IST(19/6/2013)

The government is readying a slew of measures, which includes allowing upto 100% foreign direct investment (FDI) in the telecommunication sector and opening the defence production sector to 49% FDI, from the current limit of 26%.

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A comprehensive FDI policy, which is likely to be announced by this month-end, will propose easing of caps on several sectors broadly based on recommendations made by a committee headed by economic affairs secretary Arvind Mayaram.

The committee, which submitted its report on Tuesday, has recommended further opening up of FDI in multi-brand retail to 74% from the current 49%, allowing upto 49% FDI in public sector banks and raising the ceiling in insurance and pension sectors to 74%, said sources who did not wish to be identified.

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The panel has also cleared the the air on ambiguity in the definitions of foreign direct investment (FDI) and foreign institutional investment (FIIs). At present, if an investor has a stake of 10% or less in a company, the investment is treated as FII, and more than 10%, as FDI.

These recommendations are likely to form the basis of the string of steps aimed at boosting foreign fund-flow into India, and pep up the rupee in what looks like an action-packed scene II of India’s reforms opera in the coming months.

Finance minister P Chidambaram and commerce and industry minister Anand Sharma are expected to finalise the new FDI policy shortly, sources told HT.

Under existing policies, there are four broad categories of FDI ceilings — 26%, 49%, 51% and 74%. Foreign partners are allowed to pick stakes up to 26% in defence production, insurance and pension, news channels and FM radio. FDI is allowed up to 20% in public sector banks.

The fresh pronouncements are likely to soothe frayed nerves of investors, who fear that the government is more likely to be focused on political risk management than reverse the slowdown in the economy, which until recently was an engine for global growth.

While some of these caps can be raised through executive orders, raising the FDI ceiling in insurance and pensions will require Parliamentary approval.

Besides, the final decision on FDI in the telecom sector will need to have the nod of the telecom commission, the highest inter-ministerial policy making body for the sector.

The set of new measures will likely make it easier for foreign institutional investors (FIIs) to invest in India’s corporate and government bond markets, said a government source who did not wish to be identified.

The move is aimed at attracting more dollars into India to halt the slide in the rupee that is pushing perilously close to 59 to a dollar in recent days.

Boosting market sentiment is crucial as weak investor perceptions can potentially upset the government’s budget math, particularly its plans to earn R55,814 crore in 2013-14 by selling equity in state-owned companies in 2013-14.


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