‘If the cap is serving no purpose...then we should relax or remove it’

Finance Minister P. Chidambaram, on Saturday, pitched for a thorough review of the existing caps on foreign direct investment (FDI) in various sectors as the ceiling were fixed long ago and might have outlived their utility.

Making out a strong case for review at a press conference here on a day the government came out with revised consolidated guidelines on FDI in its bid to further simplify the foreign investment regime, Mr. Chidambaram said: “We [should] look at each FDI cap. If the cap is serving a purpose, we should continue with the cap; if the cap is no longer serving the purpose, then we should either relax the cap or remove the cap.”

The FDI caps, he said, were laid down historically at different points of time. “We are now into [the] 22nd year of liberalisation...These caps must be looked into again.”

At present, two committees, one under DEA (Department of Economic Affairs) Secretary Arvind Mayaram and the other constituted by the Reserve Bank of India (RBI), are examining different aspects of the FDI regime. The RBI panel, Mr. Chidambaram said, was likely to come out with its paper on FDI in about two weeks. “We will take it forward as soon as we have [the] RBI paper and the [Mayaram] committee’s report. I don’t think either the Prime Minister or I have any pre-conceived opinion on a particular cap,” he said.

In his address at a CII conference earlier this week, Prime Minister Manmohan Singh, while talking about the UPA government’s economic agenda, had said: “The liberalisation of FDI in multi-brand retail, civil aviation and other areas, are important signals. We are reviewing the FDI policy comprehensively to see what more can be done in the coming months.”

Alongside, Commerce and Industry Minister Anand Sharma had also indicated that further relaxation of foreign investment norms could include hikes in the FDI cap for sectors such as insurance, banking and defence in a “calibrated and incremental” manner.

Meanwhile, the main brief of the eight-member Mayaram committee, which held its first meeting on April 4, is to look into and re-define what should be regarded as FDI and FII (foreign institutional investment) in keeping with the principles and practices being followed internationally.

As per the existing guidelines, if an investor has a stake of 10 per cent or less in a company, it is treated as FII and if the holding exceeds 10 per cent, the investment is treated as FDI.