Of India's FDI regime....

A government panel has recommended a dramatic liberalisation of India’s foreign direct investment regime, including raising the FDI limit to 74% in multi-brand retail and allowing complete foreign ownership of telecom and aviation companies. It has also batted for raising or doing away with FDI caps in a number of sectors, including nonscheduled air transport, ground handling at airports, satellites, private security agencies and Internet Service Providers (ISPs) to attract capital flows that are needed to finance the current account deficit and bolster the rupee, which hit a new low on Tuesday. “We have given our recommendations to the finance minister. He has forwarded them to the Department of Industrial Policy & Promotion (DIPP),” department of economic affairs Secretary Arvind Mayaram, who headed the panel, told reporters on Tuesday.
The DIPP, the administrative ministry in charge of FDI policy, will now have to implement the Mayaram Committee report. Key ministers, notably Finance Minister P Chidambaram and Commerce Minister Anand Sharma, are expected to meet in the first week of July to finalise the plan.
After clearance from key ministers, the proposal will then be brought before the Cabinet. Chidambaram has already briefed Prime Minister Manmohan Singh on the plans to further liberalise the foreign direct investment regime and Singh has endorsed the plan.
The panel has suggested allowing foreign supermarkets to buy up to 74% in Indian retailers with prior government approval. The multi-brand retail sector was thrown open to foreign investors in September 2012 but has failed to see any investment so far.
A number of foreign retailers have evinced interest in setting up shop in India but have stayed away citing stringent conditions such as minimum investment in back-end infrastructure and mandatory 30% sourcing from the small and medium enterprises sector.
The panel has suggested 100% FDI in telecom and non-scheduled air transport and amending rules to allow complete ownership by foreign investors, including airlines, in scheduled carriers. FDI in telecom will need approval of the Foreign Investment Promotion Board (FIPB), a government panel.

The committee has also favoured allowing 100% FDI in ISPs, private security agencies, satellite, ground handling operations, cable networks, direct-to-home services, mobile TV and teleports.
It has also suggested lifting caps to 49% from 26% in a number of sectors and doing away with mandatory FIPB clearance in these industries. Government clearance should be dropped for sectors not considered sensitive from strategic point of view or which need regulatory clearances from sectoral regulators, said a person privy to the contents of the report.
The government is actively discussing raising FDI in defence production to 49% and in telecom to 100%.
The RBI has also favoured a clear distinction between sectors in which the government feels Indian control is needed while the rest can be freed up totally. The finance ministry has pitched for a complete re-look at the FDI policy framework as part of the current reforms drive to boost FDI flows that shrunk by 34% to $22 billion in 2012-13.
At present, sectoral caps are at four levels — 26%, 49%, 51% and 74%. The panel has recommended sectoral caps at three levels — 49%, 74% and 100%. The finance minister, in his budget speech, had asserted that FDI had become an economic imperative for the country as it needed stable foreign capital to finance its large current account deficit estimated at 5% in 2012-13. The deficit stood at 6.7% in the third quarter of 2012-13, a gap that has alarmed policymakers.
Chidambaram kicked off the revamp in the budget by announcing adoption of an internationally accepted definition of FDI and portfolio investment where a foreign investment with more than 10% stake will be treated as FDI.

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