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The UPA Government’s claims of major liberalisation of foreign direct investment norms may boil down to just one sector - telecom. Any increase in cap in the civil aviation sector has been ruled out, while the fate of the insurance sector depends on the Insurance Bill getting Parliament’s nod.
However, undeterred, the Department of Industrial Policy and Promotion (DIPP) plans to continue consultations with the Ministry of Information and Broadcasting, and the Department of Space to push for relaxation of FDI limits in their sectors: FM radio, print media and television, and satellite.
The market received the news without excitement, and the Sensex rose 97.5 points to close the day at 19,948.73. Failing to sustain gains, the rupee slipped from a two-week high to close three paise lower at 59.34 against the dollar.
Just three sectors
The biggest announcement made on Tuesday was liberalising foreign investments in the telecom sector where the FDI cap was raised from 74 per cent to 100 per cent. Though announcements were made for 13 sectors, the fine-print reveals that only in three sectors have significant decisions been taken to raise the FDI limit.
For instance, in the Defence sector it has been left to the discretion of the Ministry, which has been openly opposing FDI in the sector, to identify products that can qualify as state-of-the-art so as to become eligible for more than 26 per cent foreign investments with the approval of the Cabinet Committee on Security. This, according to the Government, was done as there is no criterion to determine what constitutes state-of-the-art.
Similarly, in the insurance sector, the Government did not have anything new to announce as the proposed increase in the FDI cap from 26 per cent to 49 per cent is already part of the Insurance Bill that awaits Parliament clearance.
“In the Defence sector, we will have to wait for the fine-print as technically it looks like FDI can go up to any limit with the CCS approval in state-of-the-art manufacturing facilities, as no upper limit has been prescribed in the press release. The enhancement of FDI limit in the insurance sector is only a reiteration of the intention of the Government, as proposed in the Insurance Bill,” said Dev Raj Singh, Executive Director, Tax & Regulatory Services, Ernst & Young.
Discussions to continue
FDI caps have also been raised in asset reconstruction companies from 74 per cent to 100 per cent and in credit information firms from 49 per cent to 74 per cent.
“We will continue our consultations with the Information and Broadcasting sector and the Space sector. We are hopeful that there is a chance for raising the caps there. The Civil Aviation Ministry has said a definite ‘no’ to our proposal to raise FDI limit from 49 per cent to 74 per cent in domestic scheduled airlines. We do not think they are going to relent,” a senior DIPP official told Business Line .
The I&B sector has sought more time for its views on raising the cap to 49 per cent in both print and electronic media as it is in consultation with the Telecom Regulatory Authority of India and the Press Council of India on the issue. The Department of Space, too, has not yet decided on the proposed increase in FDI from 51 per cent to 74 per cent.
The Committee on FDI reforms, headed by Economic Affairs Secretary Arvind Mayaram, had suggested hiking caps in a large number of sectors, including multi-brand retail, Defence, civil aviation and I&B.
> shishir.sinha@thehindu.co.in
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