Finance Ministry proposes sweeping changes in FDI regime

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New Delhi: Seeking to promote India as an investment destination, the Finance Ministry on Tuesday proposed sweeping changes in the FDI regime, favouring higher sectoral caps in almost all sectors including defence, multi-brand retail and telecom.
Virtually doing away with the 26 per cent ceiling, a committee headed by Economic Affairs Secretary Arvind Mayaram recommended that Foreign Direct Investment limit be raised to 49 per cent in almost all sectors through automatic route.
The suggestions, according to Mayaram, are aimed at getting more foreign investment. "We certainly need more FDI. We will get more FDI."
The Secretary, who has submitted the report to the Finance Minister, said that further action will now be taken by the Department of Industrial Policy and Promotion (DIPP).
The Committee suggested that FDI in defence be raised to 49 per cent under the government approval route, from 26 per cent at present. Besides, it has proposed to increase FDI cap to 74 per cent in the multi-brand retail trading under the government approval route.
It also proposed raising the cap to 49 per cent under automatic route in sectors like single-brand retail, existing pharma companies, power and commodity exchanges, PSU banks, tea plantation, print media, PSU petroleum refinery, asset reconstruction companies, stock exchanges, insurance, depositories and clearing corporations and satellite services.
As regards courier services, the Mayaram panel said FDI up to 100 per cent be allowed under automatic 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.
The proposed policy, sources said, will be discussed among top ministries during the first week of July. 
The committee was set up by Finance Minister P. Chidambaram, who said on Monday that foreign investment limits in different sectors - where ceilings were not serving their intended purpose - should be revised.
Government is keen on increasing FDI ceilings to attract more overseas investments and finance the widening current account deficit (CAD), the difference between inflows and outflows of foreign exchange.
India's CAD, which touched record high of 6.7 per cent of GDP in the October-December quarter, is likely to be around 5 per cent for the entire 2012-13 fiscal. As per RBI, India can sustain CAD of about 2.5 per cent.
Economic growth rate, meanwhile, slipped to a decade low of 5 per cent in 2012-13, while FDI inflows declined by 38 per cent to USD 22.42 billion.
Prime Minister Manmohan Singh too had indicated in April that the government wouldfurther liberalise FDI regime in a bid to push the economic reforms programme.