Government gives nod to hike FDI caps in 13 sectors

Moneycontrol Bureau

A beleaguered government on late Tuesday evening announced a raft of investor friendly measures to woo overseas funds by easing foreign direct investment (FDI) caps in 13 sectors like insurance, commodities as well as stock exchanges, tea, telecom, courier services, defence productions, asset reconstruction companies, credit information companies and others.  Must read: RBI opens new attack to clamp rupee free fall
The Congress-led government, which is often blamed for not pulling up their socks to revive the flagging economy will face the general election in less than a year. The set of reform measures may have come on this context.
The Cabinet Committee of Economic Affairs with representation of 11 ministers under the stewardship of the Prime Minister Manmohan Singh took the consensus decision to open up the FDI door in those sectors. Also read: New hiring at Indian Banks' Association sparks controversy
In a press conference in New Delhi, the commerce minister Anand Sharma said, currently FDI is allowed either through automatic route or foreign investment promotion board (FIPB) approval route. While in some cases the ministry raised the FDI cap, the routes are changed in other cases. Automatic vs FIPB
FDI up to 100 percent of the stipulated cap is allowed under the automatic route. However,  FDI activities not covered under the automatic route requires prior approval from the government. One has to apply to FIPB. Insurance
The second largest market after bank fixed deposits - the insurance sector is now likely to get a flow of foreign capital. Indian insurance sector offers huge potential wherein there is a lot of untapped opportunities. The government hiked the FDI cap in the sector to 49 percent from 26 percent earlier. The enhanced cap will be through automatic route unlike FIPB route earlier.
Life insurance penetration in India is about 4.4 percent of the country's gross domestic product (GDP) in terms of total premiums underwritten annually, according to the Insurance Regulatory and Development Authority (IRDA). Telecom
Telecom operators have reasons to cheer. The government hiked the FDI limit in telecom sector to 100 percent from 74 percent. However, companies can seek FDI through the automatic route to the tune of 49 percent and the rest will have to be routed through the FIPB. Exchanges, petroleum and gas refineries
The maximum FDI cap for sectors including petroleum, gas refineries, commodities-stock-power exchanges remained unchanged at 49 percent. However, companies in those sectors will now enjoy the leeway to raise the same but in a hassle free way. FDI will now be allowed through automatic route as compared to FIPB route earlier. ARCs
Asset reconstruction companies or ARCs are yet to pick up business momentum in India. A perennial dispute with banks on the pricing issue is a major bottleneck. Moreover, many ARCs are falling short of funds. Typically, ARCs buy stress loans from banks and later recover it from defaulting borrowers. To revive the industry, the government increased the FDI bar to 100 percent as against the existing 74 percent. Out of total cap, ARCs can invite FDIs through the automatic route to the tune of 49 percent. The rest has to be via the FIPB route. Credit information companies
Credit information companies, which provide credit history of borrowers be it retail or corporates are growing their business fast. Every bank buys the credit information report from them before sanctioning any loan. Arcil is the biggest ARC in India so far. To facilitate their capital flows, the government raised the FDI bar from 49 percent to 74 percent through the automatic route.  Defence
India still lacks indigenous productions of defence equipments. Hence, it has to import a lot adding pressure on the rupee exchange rate against the US dollar. To add financial fillip to local productions, the ministry started deliberating on easing FDI cap, which remained at 26 percent via the FIPB route.
Sharma said that proposals for the state of the art technology investment beyond 26 percent would be cleared by the Cabinet Committee on Security (CCS).
The cabinet note on these FDI cap revision will be moved immediately. The government will provide more clarity on allowing more FDI in multi-brand retail soon. Clarity on single brand retail norms will also follow soon, said the minister. 
The government did not change FDI norms in the aviation and media industries.
saikat.das@network18online.com