Govt mulls reforms to boost foreign capital inflows

Steps to help finance CAD, support rupee; FM promises measures to tackle coal & gas pricing

With the rupee touching new lows against the dollar and the Centre's current account deficit remaining at a high level, the government is planning a slew of reform measures to boost inflow of foreign capital. These include raising foreign direct investment (FDI) caps for some sectors and easier norms for the entry of foreign institutional investors (FIIs) into the country's markets.

Besides, it is looking at ways to resolve issues related to coal and gas pricing and arrest a decline in natural gas, fertiliser and crude oil production.

Finance Minister P Chidambaram today said the government would take a call on further FDI reforms soon, while the Securities & Exchange Board of India (Sebi) would decide on easing norms for FIIs. He also met Prime Minister Manmohan Singh to discuss coal and gas pricing reforms.

"We are looking at every sector, including defence, and every cap (for FDI). If a cap no longer serves any purpose, it should be reviewed," he said.

 

After a committee headed by Economic Affairs Secretary Arvind Mayaram to clearly define FDI and FII gives its report on Monday or Tuesday, the finance minister would take up the issue with Commerce Minister Anand Sharma and the prime minister.

 

The K M Chandrasekhar Committee, set up to unify foreign portfolio investment norms, has also filed its report, which is to be discussed by Sebi at its next board meeting on June 25. Chidambaram said the government was broadly in favour of the report, which had recommended doing away with prior direct registration of FIIs and sub-accounts with Sebi, besides clubbing of FIIs, sub-accounts and qualified foreign investors (QFIs) to form a new investor class.

 

Chidambaram's statement has come at a time when the country is struggling to attract foreign inflows. FIIs have remained net-sellers in the capital markets on every single day this month. They had withdrawn $2.49 billion on a net basis until yesterday.

FDI inflows, too, have been hard to come by. In 2012-13, these declined 38 per cent to $22.42 billion, from $35.12 billion the previous year. Insurance, pension, defence and telecom are some of the sectors where the government is looking at raising the FDI ceiling.

Besides these, to boost growth, the government would give a push to 30-40 of the 250 private-sector projects, the finance minister said.

Chidambaram's statements, however, had little impact on markets. The BSE Sensex closed 213 points lower, at 18,827, on global cues, while the rupee lost 20 paise from yesterday's 57.79 a dollar to close at 57.99.

 

Chidambaram also said he would meet chiefs of public-sector banks towards the end of the month and assess why lenders were not lowering rates to pass on the benefits of RBI's rate cuts to customers.

The finance minister added, though a widening CAD was a matter of concern, it was likely to be financed without drawing down on foreign exchange reserves. He ruled out any further increase in duty on gold imports, but did not directly answer a question on issuing NRI bonds to attract foreign investment.

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KEY TAKEAWAYS

• FDI: Caps in various sectors to be reviewed
• Coal & gas pricing: Issues to be resolved by next week
• Gold imports: Further hike in duty ruled out
• FIIs’ entry: Rules might be simplified
• Rupee volatility: Steps being taken to address the issue
• Investment: Steps to be taken to revive stalled projects and boost inflows
• Rate cut: Banks asked to pass on benefits to customers