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July 17, 2013

Govt unleashes big-bang FDI reforms, opens up defence



Faced with a harsh economic environment, the government on Tuesday opened the doors to greater foreign investment in almost a dozen sectors, including telecom and the tightly-policed defence, for "state-of-the-art" technology.
 
Prime Minister Manmohan Singh moved in to iron out differences between various wings of the government to push through the fresh round of opening up to boost dwindling confidence in the Indian economy. Apart from telecom and defence, there were two segments of the financial sector - asset reconstruction companies and credit information bureaus - where the FDI ceiling was raised.

There was also the promise of increasing the cap in insurance, and consequently pension, to 49%, although the moves will need parliamentary approval. In several sectors such as oil and gas refining and stock exchanges, the government decided to allow FDI without prior approval.

The measures are aimed at attracting foreign capital, critical for trimming a yawning current account deficit that has rattled the government after the rupee's unabated slide over the past few weeks.

The most significant change was ushered in defence production. While FDI cap in defence sector remained unchanged at 26%, higher limits of foreign investment in state-of-the-art manufacturing would be considered by the Cabinet Committee on Security (CCS), commerce & industry minister Anand Sharma told reporters after the meeting.

Although Sharma did not elaborate, technically, the decision leaves it open for CCS to even allow 100% foreign investment in what the defence ministry will define as "state-of-the-art" segments with safeguards built in to ensure that the technology and equipment are not shared with other countries.

Defence minister A K Antony had concerns over allowing higher FDI, but it was pointed out that while the policy did not specify the CCS option, it could be readily incorporated. An incorrect impression had been created that the CCS caveat was being done away with.

Indian companies keen on foreign tie-ups include L&T, Mahindra & Mahindra and the Tatas. US firm Lockheed Martin is understood to be interested in a collaboration with the Tatas.

India Inc cheered the changes. "...it indicates that reforms are underway. Large number of sectors have either seen an increase in FDI cap or have moved under the automatic route from the Foreign Investment Promotion Board (FIPB) approval," Ficci president Naina Lal Kidwai said.

In telecom, the home ministry's security-related objections were negotiated with the PM and several ministers taking a view that even the current 74% FDI cap offers no protection against unscrupulous practices. Raising the ceiling to 100% is not going to increase the risks that need to be addressed by a more rigorous technical regime.

The home ministry referred to the US's Prism programme, but telecom minister Kapil Sibal argued that the problem was not with FDI itself but concerns over imported chips, switching gears and routers. These could be dealt with by encouraging production in India. Although not stated as such, the home ministry is particularly worried about use of Chinese equipment in the telecom sector.

The government, however, deferred a decision on increasing the cap in civil aviation from 49% to 74% as civil aviation minister Ajit Singh said FDI could wait as there were no interested parties waiting in the wings. He pointed to security concerns in ground handling and customs. His view was endorsed by the PM who said the ministry had taken a considered view.

On raising FDI cap to 49% in media, minister of state for information and broadcasting Manish Tewari said it would be difficult to justify breaking the precedence when regulator Trai's views were taken into consideration. The opinion of Trai and other stakeholders is awaited.

Most of the "batting" for the proposals put forward by the department of industrial policy and promotion was done by commerce minister Anand Sharma and finance minister P Chidambaram.

As was anticipated, the meeting decided to clear the automatic route for 49% FDI in commodity, power and stock exchanges. Courier services permit 100% FDI but this has now been placed on the automatic route as well. 
 
Times of india

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