The Union Cabinet is likely to take up the proposal of hiking FDI ceiling in various sectors later next month, finance minister P Chidambaram said today. "FDI cap review may come up before Cabinet in third week of July," he said replying to query on when the government will take a call on raising FDI ceilings.
Seeking to promote India as an investment destination, the finance ministry earlier this week proposed sweeping changes in the FDI regime, favouring higher sectoral caps in almost all sectors including defence, multi-brand retail and telecom. Virtually calling for doing away with the 26 per cent ceiling, a committee headed by Economic Affairs Secretary Arvind Mayaram recommended that Foreign Direct Investment limit be raised to 49 per cent in almost all sectors through automatic route.
The Mayaram-headed panel suggested that FDI in defence be raised to 49% under the government approval route, from 26% at present. Besides, it has proposed to increase FDI cap to 74% in the multi-brand retail trading under the government approval route.
It also proposed raising the cap to 49% under automatic route in sectors like single-brand retail, existing pharma companies, power and commodity exchanges, PSU banks, tea plantation, print media, PSU petroleum refinery, asset reconstruction companies, stock exchanges, insurance, depositories and clearing corporations and satellite services.
As regards courier services, the Mayaram panel said FDI up to 100% be allowed under automatic route. In the civil aviation sector, the committee suggested 100% FDI in non-scheduled air transport services under the automatic route as against the current 49%. The proposed policy, sources said, will be discussed amongst top ministries during the first week of July. Government is keen on increasing FDI ceilings to attract more overseas investments and finance the widening current account deficit (CAD), the difference between inflows and outflows of foreign exchange.
India's CAD, which touched a record high of 6.7% of GDP in the October-December quarter, is likely to be around 5% for the entire 2012-13 fiscal. As per RBI, India can sustain CAD of about 2.5%. Economic growth rate, meanwhile, slipped to a decade low of 5 per cent in 2012-13, while FDI inflows declined by 38% to $22.42 billion.