The Union Cabinet has approved raising the foreign direct investment limit (FDI) in the sensitive defence sector to 49% from 26% and opened up the railway infrastructure segment to foreign firms. The NDA government wants to accelerate economic reforms, attract investments and create jobs. The Cabinet also decided that FDI beyond 49% will be allowed in state-of-the art defence equipment manufacturing, with technology transfer under Indian control and management. Technically, this means 100% FDI is allowed, but sources said this has been the position since 2002. As a safeguard, the Cabinet Committee on Security will approve such proposals. Sources said FDI up to 24% will be allowed via the automatic route.
The Cabinet also allowed 100% foreign participation in crucial infrastructure segments of the Railways, in line with Narendra Modi government’s plan to fast-track modernization of the state-run transporter. So far, FDI in Railways and atomic energy was not allowed. Now, foreign investors can invest in setting up of suburban rail networks, high-speed corridors, signalling projects, logistic hubs and in creating links to industrial parks.
These decisions follow the earlier move to raise the FDI limit in the insurance sector to 49% from 26%, though the legislation has met stiff resistance in Parliament from some opposition parties such as Congress.
In the Budget, finance minister Arun Jaitley had announced the government’s intention of opening up the defence manufacturing sector to stem the outflow of crucial foreign exchange and strengthen the domestic manufacturing sector. The move to open up the Railways to foreign investment is expected to help accelerate modernization of creaky infrastructure. The government has made its intention of pushing rail projects on the public private partnership (PPP) mode and has announced several measures to improve its services.
Experts cheered the move to open up the Railways to FDI.
The Modi administration has made it clear that it will promote FDI selectively in sectors where it helps the larger interest of the domestic economy.
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