Govt in dilemma over decision on hike in FDI cap

For the last few days, the department of industrial policy and promotion (DIPP) have been carrying out extensive consultations with different ministries on whether the foreign direct investment (FDI) cap for some sectors should be hiked, as proposed by department of economic affairs (DEA) secretary Arvind Mayaram.

While higher FDI should not be a problem for some sectors, though for significant sectors like defence production, media and retail could be a bit of a struggle, reports CNBC-TV18’s Rituparna Bhuyan and Elan Dutta
The road to FDI reforms is not going to be easy. In the telecom sector for instance the proposal for 100-percent FDI was endorsed by the telecom commission but there are significant security concerns expressed by the home ministry. It is also concerned about enhanced FDI caps in defence production, retail and the media and broadcasting sectors.
On the defence production front, AK Antony has written to Anand Sharma, calling for maintaining the current FDI cap at 26 percent.
Meanwhile, the information and broadcasting (I&B) ministry has started consultations with print and broadcast firms on 49% FDI in order to evolve a consensus on the proposed hike. The good news is that FM radio operators have favoured the proposal.
In fact, the DIPP believes that with Press Notes 2 and 3 of 2009 being notified under Foreign Exchange Management Act (FEMA), the prospects for 49 percent FDI in seven sectors including broadcasting, print, PSU, refining etc will improve.
The logic being what is allowed indirectly should be allowed directly.
On the far more controversial multi-brand retail front, the DIPP is considering several relaxations, which includes allowing FDI funded stores in cities with population of less than 1 million.
The mandatory sourcing norms could also be tweaked with inclusion of co-operatives and farm produce in SME goods. The line ministry expected to submit its views on the relaxations to the DIPP by early next week.
The DIPP, on brownfield pharma FDI has discussed the proposed conditions with the health and pharma departments and have proposed that minimum production levels of essential drugs, post FDI infusion will have to be kept at the highest production level seen in the past five years.
The Prime Minister is likely to meet all line ministries regarding FDI reforms, post which the DIPP will move a comprehensive note for the consideration of the cabinet by mid July.