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Panel moots easing of FDI sectoral caps

Special Correspondent
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The Mayaram committee for doing away with the 26 per cent limit

Arvind Mayaram
Arvind Mayaram

As mandated by Finance Minister P. Chidambaram to review sectoral caps in foreign direct investment (FDI), the committee headed by Economic Affairs Secretary Arvind Mayaram, on Tuesday, recommended easing of existing ceilings in a host of sectors such as defence, telecommunications, public sector banks and insurance, petroleum refining as well as single and multi-brand retail.

The conscious move to review and raise the FDI limits in all spheres of economic activity is aimed at sweetening the norms of foreign investments to attract larger doses of capital inflows in the longer-term as well as enable the government in bridging the widening current account deficit.

“We have submitted the report to the Finance Minister. Action will be taken on it as and when the government decides. Policy is with the DIPP [Department of Industrial Policy & Promotion], so finally they will take a call. This is just our recommendation,” Dr. Mayaram told reporters here.

Defence

In general, the committee has recommended virtually doing away with the 26 per cent cap on FDI in all sectors, including defence and insurance, by raising the limit to 49 per cent. For the defence sector, for instance, it has suggested that the ceiling be raised to 49 per cent under the approval route.

Likewise, in the case of multi-brand retail, which is already open to 51 per cent FDI under the FIPB (Foreign Investment Promotion Board) route, the Mayaram panel has recommended that the ceiling be raised to 74 per cent so as to make the sector more attractive to foreign investors.

As for single-brand retail in which 100 per cent FDI is already allowed under the approval route, it has suggested further easing of norms by way of allowing 49 per cent foreign investment under the automatic route. The same prescription has also been handed down for the pharmaceuticals sector, in that it has suggested 49 per cent under the automatic route while 100 per cent FDI is already available under the government approval route.

Telecom

For the telecom sector, the committee has gone a step further. It has suggested that while the facility of 49 per cent FDI under automatic approval route be retained, the limit should be raised to 100 per cent from the existing 74 per cent under the FIPB route.

According to DIPP Secretary Saurabh Chandra, the committee’s report and recommendations will be circulated among the ministries and departments for their comments. Following this, ministerial discussions are to be held during the first week of July.

The plan is in line with what the Finance Minister had indicated at his press conference last week. After his discussions with Commerce and Industry Minister Anand Sharma, the proposals are to be placed before the Prime Minister for a decision.

The Mayaram panel has recommended that the FDI cap on the insurance sector should be raised to 49 per cent from the current 26 per cent within the norms stipulated by the Insurance Regulatory and Development Authority (IRDA). This, however, would require Parliamentary nod as a Bill in this regard is already pending approval.

As for public sector banks (PSBs), the committee has said that FDI up to 49 per cent should be permitted in such banks under the automatic route. At present, the limit is pegged at 20 per cent with prior approval of the FIPB. It has noted that such investment should be in conformity with the Reserve Bank norms and a new definition of ‘control’ be worked out by the government.

For the sector including plantations, while the committee has proposed 49 per cent FDI under the automatic route as against 100 per cent under the FIPB route, in the case of petroleum refining by the public sector undertakings (PSUs), it has said that foreign investment up to 49 per cent allowed under the automatic route. At present, foreign investors have to seek approval from the FIPB for investments up to 49 per cent.

Print media

The Mayaram panel has also suggested that the FDI ceiling for the print media be raised to 49 per cent under the automatic route as against 26 per cent under the approval route. Likewise, commodity and power exchanges may be allowed investment up to 49 per cent under automatic route as against the FIPB route

To induce larger investment flows into asset reconstruction companies (ARCs), the committee has said that the FDI cap should be hiked to 100 per cent under the FIPB route and up to 49 per cent under the automatic route. As against the current limit of 74 per cent under the FIPB route.

For stock exchanges, depositories and clearing corporations, the suggestion is for FDI up to 49 per cent under the automatic route as against FIPB route within the SEBI regulations.

In civil aviation, the committee suggested 100 per cent FDI in non-scheduled air transport services under the automatic route as against 49 per cent.

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