Decision on FDI cap review expected by May-end: Sources

The much-talked reforms on foreign direct investment (FDI) may soon see light of the day as the decision on the review of FDI in various sectors is expected to come by May-end, reports CNBC-TV18's Aakansha Sethi quoting government sources.

In the Budget, finance minister P Chidambaram had announced the setting up of a committee which would look at the definition of FDI and foreign institutional investment (FII). This committee, which is headed by department of economic affairs (DEA) secretary Arvind Mayaram, has already met once.
The committee is now waiting for the Reserve Bank of India to submit a paper on the definitions of FII and FDI as well as on the sectors where the FDI cap will be reviewed. The committee headed by Mayaram, will take a decision on FDI caps in various sectors once the RBI submits its paper, which is expected to be out this month itself. 
FDI caps are pegged broadly at five levels-26 percent, 49 percent, 51 percent, 74 percent and 100 percent.
The committee is also likely to consider the fact that the FDI caps should exclude FII investment, sources said. For example, if there is a 26-percent FDI cap in a sector, there will be no cap for FIIs, which means five FIIs could hold a stake of 3 percent each and that would take the total stake to 15 percent over and above the 26-percent cap on FDI.
However, the final decision will come only after the RBI submits its paper, but this is now an option that is being considered separately, sources added.
After clearing 51-percent FDI in multi-brand retail and 49 percent in aviation in August 2012, the government has been trying to push the bill in Parliament which will allow 49 percent FDI in insurance and 26 percent in the pension sector. Also read: PM hints at more liberalisation of FDI regime
Even defence features on top of the list of sectors that government is considering to open up to foreign direct investment. There is a clamour for hiking the 26-percent FDI in the defence sector to boost local manufacturing. Both the finance and the commerce ministries are looking at FDI in defence. Since it is politically contentious decision, consensus will have to be built.
The finance minister recently said that FDI caps were laid down historically at different points of time. "We are now in the 22nd year of liberalisation...These caps must be looked into again," he added.