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A government desperate to spur the economy and stem the rupee's slide relaxed the investment caps for foreign investors in a range of sectors on Tuesday including telecom, high-tech defence production and insurance.
Prime Minister Manmohan Singh and his senior colleagues overhauled India's foreign direct investment (FDI) policy in a two-hour meeting, most notably raising the cap in the telecoms sector to 100% from 74%.
In the case of defence production, the cabinet committee on security (CCS) will approve proposals on case-to-case basis beyond the existing 26%, which are likely to result in "access to modern state-of-the-art technology in the country".
The government has also decided to raise the FDI cap in the insurance sector to 49%, subject to legislative amendments by Parliament. Cabinet is set to approve these decisions at a meeting next week.
The ruling UPA faces a toxic mix of high inflation, a falling currency and poor economic growth at the worst possible time - key state elections are just months away, and national polls less than a year distant.
Foreign investment would help prop up the rupee, generate jobs and boost incomes at a time when cutting interest rates is looking difficult. Investors are likely to cheer the measures when markets open on Wednesday.
Besides raising caps in several sectors, the government also eased norms allowing FDI to come in through the automatic route.
This will hasten actual fund flow as investors only will need to make appropriate disclosures to the RBI, instead of routing these through the foreign investment promotion board (FIPB) - the nodal agency empowered to vet FDI applications in India.
Some of these caps can be raised through executive orders.
The government also raised the FDI limit on credit information companies from to 74% through the automatic route against the existing 49% cap subject to approval by FIPB.
Likewise, FDI in petroleum refineries, commodity exchanges, power exchanges, stock exchanges will be allowed through the automatic route with their caps retained at 49% for each of them.
All these decisions were taken by "consensus", commerce and industry minister Anand Sharma said.
"A cabinet note will be moved immediately and the next meeting of the cabinet will take up all these decisions," he said.
Besides civil aviation, Sharma said, no view was taken on relaxing FDI caps in airports, media, brownfield pharma and multi-brand retail.
Ministers of defence, finance, petroleum, food and consumer affairs, power and home attended the meeting.