A government panel on Tuesday proposed raising foreign investment limits in sectors like defence, multi-brand retail and telecommunications, to spur investment in the country and tide over the Current Account Deficit woes.
"We have submitted the report to the Finance Minister. Action will be taken on it as and when the government decides. Policy is with DIPP so finally they will take a call. This is just our recommendation," Economic Affairs Secretary Arvind Mayaram said.
The committee, which was set up by Finance Minister P Chidambaram to review the sectoral caps, has suggested that the Foreign Direct Investment (FDI) ceiling in the defence sector be raised to 49 per cent under the government approval route from 26 per cent at present.
In order to make multi-brand retail more attractive to foreign investors, the panel suggested that the FDI limit be raised to 74 per cent under the Foreign Investment Promotion Board (FIPB) route from 51 per cent.
In case of single-brand retail, it suggested easing of the norms by advocating 49 per cent investment under the automatic route. Currently, the government allows 100 per cent FDI under the approval route.
Similarly in case of pharmaceuticals sector, the committee recommended 49 per cent under automatic route as against 100 per cent under the government approval route.
As regards the telecom sector, the Mayaram panel said that 100 per cent FDI be allowed under the FIPB route as against 74 per cent. It wanted the government to retain 49 per cent FDI under automatic route in the telecom sector.
The proposal, Department of Industrial Policy and Promotion (DIPP) secretary Saurabh Chandra said, would be circulated among the ministries for their comments. The proposed policy, sources said, will be discussed among top ministries during the first week of July.
The relaxation in foreign investment caps is aimed at check the widening CAD which is estimated to be 5 per cent of the GDP in 2012-13 as against the Reserve Bank's comfort level level of 2.5 per cent.
In case of insurance sector, the Mayaram panel said, the investment cap be raised to 49 per cent from 26 per cent within the norms of the Insurance Regulatory and Development Authority (IRDA).
The panel has recommended easing of foreign investment norms in the public sector banks. It said that FDI up to 49 per cent in PSU banks be allowed under the automatic route as against 20 per cent with prior approval of the FIPB.
Such investment should be in conformity with the Reserve Bank norms and new definition of 'control' to be worked out by the government.
In tea sector including tea plantation, the committee proposes that FDI be allowed up to 49 per cent under the automatic route as against 100 per cent under the FIPB route. In case of petroleum refining by the Public Sector Undertakings (PSU), the committee said foreign investment up to 49 per cent allowed under the automatic route.
Currently foreign investors are required to seek approval of FIPB for investments up to 49 per cent. As regard print media, the panel suggested that FDI ceiling be raised to 49 per cent under the automatic route as against 26 per cent under the approval route.
In order to encourage foreign investment in asset reconstruction companies (ARCs), the committee said FDI cap be increased to 100 per cent under the FIPB route and up to 49 per cent under the automatic route. Presently, 74 per cent is allowed under the FIPB route.
Commodity and power exchanges may be allowed investment up to 49 per cent under automatic route as against the FIPB route.
In stock exchanges, depositories and clearing corporations, the panel suggested that FDI up to 49 per cent be allowed under the automatic route as against FIPB route within the SEBI Regulations.
In case of establishment and operations of satellite services, the panel recommended that FDI up to 49 per cent be allowed under the automatic route and up to 74 per cent under FIPB route.
As regards courier services, the Mayaram panel said FDI up to 100 per cent be allowed under automatic route as against FIPB route.
In the civil aviation sector, the committee suggested 100 per cent FDI in non-scheduled air transport services under the automatic route as against 49 per cent.