Govt allows 100% FDI in telecom

Introduction

Inflow norms for defence and single-brand retail also eased; Mayaram suggestions partially accepted

New Delhi: Amid concerns over a weakening rupee, dwindling capital inflows and a widening current account deficit, the country on Tuesday moved a step closer to overhauling its foreign direct investment (FDI) policy as it lifted caps for the telecom sector and asset reconstruction firms, besides tweaking norms for 13 sectors. The limit for defence production companies was also virtually raised to 100 per cent, subject to approval from the Cabinet Committee on Security (CCS).

The decision was taken at a meeting of senior Cabinet ministers with Prime Minister Manmohan Singh.

Also decided at the meeting was that FDI cap for private insurers would be raised to 49 per cent but that would need Parliament’s approval. The FDI limit for credit information firms was raised from 49 per cent to 74 per cent — all of it may come through the automatic route, against the requirement for clearance from the Foreign Investment Promotion Board (FIPB) at present. (EASING FDI INFLOWS)

Besides these, the ministers eased FDI procedures for seven other sectors. But they stopped a little short of accepting all recommendations of the Arvind Mayaram committee, including those to raise FDI cap for news & media (current affairs) to 49 per cent from 26 per cent.

After the meeting, Commerce Minister Anand Sharma said a Cabinet note on Tuesday’s recommendations would soon be prepared. He, however, clarified that these proposals would not be taken up at the Cabinet meeting on Wednesday.

He also assured investors that their concerns over multi-brand retail would be allayed and clarifications would soon be issued. He added that his ministry’s concern over acquisition of Indian pharma companies by foreign ones would be discussed separately.

Though FDI in telecom services will be raised to 100 per cent, only up to 49 per cent could come via the automatic route. Beyond that, permission of FIPB will have to be sought.

So far as FDI in defence is concerned, it has been left to CSS to decide which FDI proposals will bring in state-of-the-art technology into the country. That way, even the proposals for foreign investment beyond 26 per cent could be considered on a case-by-case basis.

In single-brand retail, though there is no FDI limit at present, the investment has come only after FIPB clearance. This has been eased to allow up to 49 per cent investment through the automatic route. Similarly, up to 49 per cent FDI is currently allowed in petroleum and natural gas refinery, but with FIPB approval.

This, too, has been changed to automatic route, without any modification in cap. The caps on FDI in commodity exchanges, power exchanges, stock exchanges, depositories and clearing houses have been retained at 49 per cent (26 per cent FDI and 23 per cent foreign institutional investments). But procedures of approval have been eased and investments can now come through the automatic route.

The meeting also decided to remove a clause that tea and other plantation companies — in which 100 per cent FDI is allowed — have to divest 26 per cent equity in favour of Indians within five years. For this sector, up to 49 per cent FDI could come via automatic route, while that below this threshold will have to be vetted by FIPB. Courier services already enjoy 100 per cent FDI but now full investment could come via automatic route.

Source

India Brand Equity Foundation, July 17, 2013