Doubts remain, if India’s move to raise FDI will attract Investors

Apart from IKEA, no significant proposals so far.

By R Chandrasekaran

CHENNAI: Given the none-too-impressive inflow of foreign direct investments (FDI) in the retail sector, the Indian government has increased the cap of FDI in at least 12 sectors to attract foreign funds flow as part of further reforms and arresting the significant slide in the Indian currency.

The government move on increasing the FDI come on the heels of Finance Minister P Chidambaram and Commerce Minister Anand Sharma’s visit to the U.S. to shop for foreign investments and restore the global business communities’ confidence in India’s growth story.

The key sectors that got the FDI cap increased include insurance, telecom, oil and gas, single brand retail and defense. While the FDI in insurance sector is increased to 49 percent from 26 percent, telecom sector is allowed hundred percent FDI.

In the defense sector, the government retained the 26 percent cap. However, it said that it will not mind in allowing higher FDI if it helps India get ‘state-of-the-art technology’ subject to approval from the cabinet committee on security or CCS.

In the multi-brand retail segment, the government maintained 51 percent FDI cap since it wants the corporate to make use of the current limit before seeking the increase in the cap. The decision comes despite a 74 percent cap recommended by a committee chaired by Arvind Mayaram, Economic Affairs Secretary of the government.

However, the government had given its nod for up to 49 percent of FDI in single-brand retails and petroleum for which the proposal need not have to go first to Foreign Investment Promotion Board (FIPB). This is expected to give room for speedy clearance of the proposals.

Despite opening up the retail sector to FDI in September last year, there have not been significant proposals from foreign companies, except IKEA. This is probably due to the riders attached to norms while granting FDI.

However, the stock exchange felt disappointed since the government failed to increase the investment cap per investor on stock exchanges, which is 5 percent currently. They were expecting it to be raised to 15 percent.

While the government’s move to allow automatic route of up to 49 percent FDI in several sectors may look attractive, there seems to be doubts whether it will enthuse investors since there could be lower individual cap.

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