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Keeping a dwindling economy in mind, the government on Tuesday finally unbridled a plethora of sectors by allowing foreign direct investment (FDI) in those ranging from telecom to oil and gas.
However, it remains to be seen how much of the move enthuses foreign investors who are closely watching the developments as some of the key sectors remain out of the loop such as multi-brand retail trade (MBRT) and civil aviation.
The government, which had been under pressure from various quarters for all these years to unleash FDI reforms, seems to have finally woken up from a deep slumber now that all the key macroeconomic indicators are running in deficit. The country’s current account deficit (CAD) has touched 4.8% of the GDP in 2012-13.
In a closed-door meeting called by Prime Minister Manmohan Singh, the government allowed 100% FDI for telecom, asset reconstruction companies and courier services.
So once these decisions get approved by the Cabinet and the FDI policy gets changed, 100% foreign participation will be allowed in all these sectors: telecom, asset reconstruction companies, single brand retail, agriculture and animal husbandry, tea plantation, mining, coal and lignite, courier services, up-linking of non-news and current affairs TV channels, publishing of scientific and technical magazines, publishing facsimile edition of foreign newspapers, airports, helicopter services, maitanence and repair organisations, townships, industrial parks, wholesale trading, e-commerce, test marketing and pharmaceuticals.
However, concerns will still remain on how much of the 100% FDI will be allowed through the automatic route, wherein a certain investor can invest in the sector directly.
The government approval route which is the other alternative requires permission of the Foreign Investment Promotion Board’s (FIPB).
Similarly, in defence sector while the threshold remained unchanged at 26% through the official route, the government is willing to consider such proposals where even 100% participation will be allowed provided it meets certain conditions.
During the meet last night, which went on for a little more than one hour at the PM’s official residence, government allowed 49% through the automatic route for sector such as petroleum and natural gas, commodity exchanges, power exchanges and stock exchanges. For credit information companies 74% is allowed through the automatic route.
According to commerce and industry minister Anand Sharma, these measures will significantly boost FDI inflows which have witnessed a fall of 38% to $22.4 billion in 2012-2013 compared to $35.1 billion in 2011-12. Sharma and Finance Minister P Chidambaram have just come back from week long visit to US where they were severely criticised the investors for not doing enough in FDI reforms.
As far as FDI in MBRT is concerned the panel constituted under department of economic affairs secretary Arvind Mayaram suggested hiking the FDI cap to 74% from the present 51%, but nothing was done.
But it is learnt that the government will soon issue clarifications. This is because retailers do not want a hike in FDI cap but they have demanded relaxation in the stiff riders that were imposed.
| Sectors | Earlier Position | Present Position |
| Petroleum and Natural Gas and Refining | Exploration, marketing and infrastructure creating 100% (Automatic); refining 49% (FIPB) | 40% (Automatic) |
| Commodity Exchanges | 49% (Government) | 49% (Automatic) |
| Power Exchanges | 49% (Government) | 49% (Automatic) |
| Stock exchanges, Depositatries, Corporation | 49% (Government) | 49% (Automatic) |
| Asset Reconstruction Companies | 74% (Government) | Upto 49% (Automatic); 49 to 100% (FIPB) |
| Credit Information Companies | 49% (Government) | 74% (Automatic) |
| Single Brand Retail Trading | 100% (Government) | Upto 49% (Automatic); 49 to 100% (FIPB) |
| Basic and Cellular Services, etc | Automatic up to 49 per cent; Government route beyond 49 per cent and up to 74 per cent | Upto 49% (Automatic); 49 to 100% (FIPB) |
| Courier Services | 100% (Government) | 100% (Automatic) |
| Defence Production | 26% (Government) | CCS to approve proposals on a case to case basis that will exceed the 26% limit |
| Agriculture and Animal Husbandry | 100% (Automatic) | -NO CHANGE- |
| Tea Plantation | 100% (FIPB) | -NO CHANGE- |
| Mining | 100% (Automatic) | -NO CHANGE- |
| Coal and Lignite | 100% (Automatic) | -NO CHANGE- |
| Print Media (Publishing of newspaper and periodicals dealwing with news and current affairs) | 26% (Government) | -NO CHANGE- |
| Civil Aviation (Greenfield Project) | 100% (Automatic) | -NO CHANGE- |
| Civil Aviation (Existing Project) | Upto 74% (Governmnet); Beyond 74-100%(Automatic) | -NO CHANGE- |
| Civil Aviation (Ground Handling Services) | Automatic upto 49%; Government route beyond 49% and upto 74% | -NO CHANGE- |
| Civil Aviation (Maintenance and Repair) | 100% (Automatic) | -NO CHANGE- |
| Construction Development: Townships, Housing, Built-up infrastructure | 100% (Automatic) | -NO CHANGE- |
| Industrial Parks (New and Existing) | 100% (Automatic) | -NO CHANGE- |
| Cash and Carry Wholesale Trading | 100% (Automatic) | -NO CHANGE- |
| E-Commerce Activities (B2B) | 100% (Automatic) | -NO CHANGE- |
| Multi Brand Retail Trading | 51% (Government) | -NO CHANGE- |
