Sectoral caps in civil aviation, insurance, telecom hiked

Finance Minister P Chidambaram has inched closer to his aim of attracting $10 billion in foreign direct investments (FDI) a year by proposing to raise the sectoral caps in insurance, civil aviation and telecommunications.

While Chidambaram has raised the FDI cap in the insurance and civil aviation sectors, from 26 per cent and 40 per cent, respectively, to 49 per cent, he has raised the FDI ceiling in telecommunications to 74 per cent from the present 49 per cent.

"There is an urgent need for infusing huge amounts of capital in these sectors," the minister said.

The proposal to raise the FDI cap in insurance will, however, require an amendment to the Insurance Act, 1938. Unlike other sectors, where FDI limits can be raised through a notification, in the insurance sector, the limit is specified in the Act itself.

The Insurance Regulatory and Development Authority of India (IRDA) had earlier found merit in insurance companies' demand to raise the FDI limit.

Foreign investors had complained the FDI limit of 26 per cent acted as a constraint in infusing funds into a venture, especially in joint ventures where the Indian partner was unable to bring his share.

The telecommunication sector has significantly contributed to the FDI inflow ever since the economy started opening up in January 1991. It accounts for almost 13 per cent of the total FDI inflows till date.

Between January 1991 and March 2004, the sector has attracted FDI to the tune of Rs 10,725 crore or $ 2.56 billion, and is one of the top three FDI earners for the country.

The move to privatise the Delhi and Mumbai airports is expected to get a fillip with the proposal to raise the FDI cap in the civil aviation sector.

Further, airline companies including Jet Airways and Air Sahara can raise capital to aggressively expand their business in the country.

During the last four years, life insurance companies in particular, had expended their capital and now require more funds to meet the capital adequacy norms stipulated by the IRDA. Against a minimum authorised capital of Rs 100 crore, at least four of the dozen-odd life insurance companies have more than doubled their capital.

According to an IRDA annual report for 2002-03, foreign companies in the insurance sector have brought in FDI to the tune of Rs 825.44 crore till September 2003. The paid-up capital of the 27 players in the sector, as on March 31, 2003, stood at Rs 4,172.13 crore.

While ICICI Prudential has increased its capital nine times since its inception in December 2000 to Rs 625 crore now, Max New York Life has more than trebled it to Rs 346 crore, HDFC Standard Life to Rs 218 crore and Birla Sun Life to Rs 230 crore.

Even ING Vysya and SBI Life have raised their capital to Rs 140 crore and Rs 175 crore, respectively.