Chidambaram may head EGoM on FDI overhaul

A new Empowered Group of Ministers (EGoM) is to be set up to have a look at the Arvind Mayaram panel report, which has suggested a major change in the foreign direct investment (FDI) regime. The EGoM is expected to be headed by Finance Minister P Chidambaram.

"The eGoM will seek to overhaul the country's FDI policy by raising caps in defence, telecom, multi-brand retail, insurance and pension sectors," a key official told Business Standard. Its final contours would be decided during a meeting between Prime Minister Manmohan Singh and his cabinet colleagues in the first week of July.

The EGoM will be asked to close the issue within a specified period, as the government aims to bring in all the changes in the next revision of Consolidated FDI Policy, to be effective from October 1. An EGoM is delegated the power to decide; this need not go to the cabinet.

The Mayaram panel (he is secretary, economic affairs) had yesterday recommended raising the FDI cap in the defence, telecom, multi-brand retail, insurance and pension sectors. It also suggested simplifying the FDI policy structure by reducing the layers of caps.

It has recommended raising the FDI limit in the defence sector from 26 per cent to 49 per cent and in telecom from 74 per cent to 100 per cent. It also wants raising of the cap in the insurance and pension sectors. The cabinet had already approved a rise in the FDI cap in these latter two segments to 49 per cent but Bills to that effect are pending in Parliament.

To make the multi-brand retail segment more attractive to foreign investors, the panel suggested the FDI limit in this space be raised from 51 per cent to 74 per cent. For the media segment, it has recommended keeping the lowest cap at 49 per cent (it is presently 26 per cent). Broadly, it has said that except in some sensitive sectors, FDI should be allowed under the approval route, not through the Foreign Investment Promotion Board.

For single-brand retail, the panel suggested 49 per cent FDI under the automatic route, against the current 100 per cent under the approval route. In pharmaceuticals, it recommended 49 per cent FDI under the automatic route, against 100 per cent under the government approval route in expansion projects. Higher FDI would help finance the Centre's widening current account deficit, expected to be five per cent of gross domestic product for 2012-13 against the Reserve Bank of India's comfort level of 2.5 per cent.