Govt panel for hiking FDI limits in defence, telecom

New Delhi: A government panel on Tuesday proposed raising foreign investment limits in sectors like defence, multi-brand retail and telecommunications, to spur investment in the country and tide over the Current Account Deficit woes. "We have submitted the report to the Finance Minister. Action will be taken on it as and when the government decides. Policy is with DIPP so finally they will take a call. This is just our recommendation," Economic Affairs Secretary Arvind Mayaram told reporters in Delhi.

The committee, which was set up by Finance Minister P Chidambaram to review the sectoral caps, has suggested that the Foreign Direct Investment (FDI) ceiling in the defence sector be raised to 49 per cent under the government approval route from 26 per cent at present. In order to make multi-brand retail more attractive to foreign investors, the panel suggested that the FDI limit be raised to 74 per cent under the Foreign Investment Promotion Board (FIPB) route from 51 per cent. In case of single-brand retail, it suggested easing of the norms by advocating 49 per cent investment under the automatic route.

Currently, the government allows 100 per cent FDI under the approval route. Similarly in case of pharmaceuticals sector, the committee recommended 49 per cent under automatic route as against 100 per cent under the government approval route. As regards the telecom sector, the Mayaram panel said that 100 per cent FDI be allowed under the FIPB route as against 74 per cent. It wanted the government to retain 49 per cent FDI under automatic route in the telecom sector. The proposal, Department of Industrial Policy and Promotion (DIPP) secretary Saurabh Chandra said, would be circulated among the ministries for their comments.

The proposed policy, sources said, will be discussed among top ministries during the first week of July. The relaxation in foreign investment caps is aimed at check the widening CAD which is estimated to be 5 per cent of the GDP in 2012-13 as against the Reserve Bank's comfort level of 2.5 per cent. The committee was set up by Finance Minister P Chidambaram, who said on Monday that foreign investment limits in different sectors - where ceilings were not serving their intended purpose - should be revised.

Government is keen on increasing FDI ceilings to attract more overseas investments and finance the widening current account deficit (CAD), the difference between inflows and outflows of foreign exchange. India's CAD, which touched record high of 6.7 per cent of GDP in the October-December quarter, is likely to be around 5 per cent for the entire 2012-13 fiscal. As per RBI, India can sustain CAD of about 2.5 per cent. Economic growth rate, meanwhile, slipped to a decade low of 5 per cent in 2012-13, while FDI inflows declined by 38 per cent to USD 22.42 billion.

Prime Minister Manmohan Singh too had indicated in April that the government would further liberalise FDI regime in a bid to push the economic reforms programme.