FDI limit in defence, insurance hiked to 49%

Jaitley also increased capital outlay of defence by Rs 5,000 crore, including Rs 1,000 crore for development of railways in borders areas. While the FDI limit on defence manufacturing has been raised to 49%, ownership of such joint ventures will stay with Indian companies.

To revive flagging growth, the Union Budget 2014-15 put emphasis on attracting foreign investment, as Arun Jaitley proposed raising the FDI cap in defence and insurance sectors to 49% from the present 26%.

"The policy of the NDA government is to promote Foreign Direct Investment selectively in sectors where it helps the larger interest of the Indian economy," the finance minister said in his speech.

Jaitley also increased capital outlay of defence by Rs 5,000 crore, including Rs 1,000 crore for development of railways in borders areas. While the FDI limit on defence manufacturing has been raised to 49%, ownership of such joint ventures will stay with Indian companies.

The step is in line with Prime Minister Narendra Modi's thrust on expansion of the defence industrial base in the country and enhancing self-reliance in defence sector, apart from venturing upon exporting military items.

India is the largest buyer of defence equipment in the world. Since domestic manufacturing capacities are still at a nascent stage, India has purchased a substantial part of its defence requirements directly from foreign players. Companies controlled by foreign governments and private sector firms from other nations are supplying equipment to India at a considerable outflow of foreign exchange.

Jaitely also indicated the government's plans to draw financing in the insurance sector.

"The insurance sector is investment starved. Several segments of insurance sector need expansion," he said.

Jaitley said that the composite cap of foreign exchange was being raised to 49% in the insurance sector with full management and control through the Foreign Investment Promotion Board (FIPB) route.