India: Government announces a slew of reforms

  • India: Government announces a slew of reforms

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July 17, 2013

New Delhi: In a move that can be expected to boost the foreign inflows into the Indian market, the Government of India on Tuesday announced increasing the foreign direct investment (FDI) limit in the telecom sector and asset reconstruction firms. In fact, the government opened the gates to foreign investors in 13 sectors including petrol and natural gas, insurance and defence production industries.

The decision was taken at a meeting of senior cabinet ministers with Prime Minister, Dr Manmohan Singh. It was also decided at the meeting that the FDI limit for private insurers would be raised to 49 per cent with Parliament’s approval. The FDI limit for credit information firms was also raised from 49 per cent to 74 per cent wherein all of it may come through automatic route. In fact, FDI procedures for seven other sectors were also eased in order to increase the foreign inflows into the Indian market.

It may be noted here while the FDI in telecom services has been increased to 100 per cent, only up to 49 per cent could come under the automatic route, beyond which, permission of FIPB will have to be sought. In regards to foreign investment in the defence sector, it was left to Cabinet Committee on Security (CCS) to decide which FDI proposal plans to bring state-of-the-art technology into the country. After securing the approval from CCS, the foreign investment in defence can also go beyond 26 per cent on a case-by-case basis.

In single-brand retail, which currently allows 100 per cent FDI post the FIPB approval, the policy has been eased to allow 49 per cent through automatic route. Similarly, the 49 per cent FDI currently allowed with FIPB approval in petroleum and natural gas refinery sector, has also been eased to automatic route without any change in the overall limit of investment.

Interestingly, while 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), the procedures of investment can now come through automatic route.

It was also decided in the meeting that the clause which requires tea and other plantation companies, in which 100 per cent FDI is permitted, have to divest 26 per cent equity in favour of Indians within five years should be removed.

Courier services already have a 100 per cent FDI limit but the investment can now come under the automatic route.

The second wave of economic reforms has been widely lauded by the investors, associations and the domestic industry. Going forward, the announcements can be expected to bring in additional foreign inflows to spur the growth of the economy.

S. No Sector Cap Route
1 Petroleum and Natural Gas and Refining 49% Automatic
2 Commodity Exchanges 49% Automatic
3 Power Exchanges 49% Automatic
4 Stock Exchanges, Depositories, Corporation 49% Automatic
5 Asset Reconstruction companies Upto 49%
49% to 100%
6 Credit Information companies 74% Automatic
7 Single Brand Retail trading Upto 49%
49% to 100%
8 Basic and Cellular Services, etc. Upto 49%
49% to 100%
9 Courier Services 100% Automatic
10 Defence Production CCS may approve proposals
on case to case basis
beyond 26% which are likely
to result in access to modern
and state of the art technology
in the country.

Click here for an overview of foreign direct investment (FDI) in India

Click here for economic reforms announced in September 2012

x IBEF : India Brand Equity Foundation