Panel seeks major easing of FDI limits.

NEW DELHI: A government-appointed panel on Tuesday recommended major liberalization of overseas investment rules, including an increase in the foreign direct investment (FDI) ceilings for politically-sensitive sectors such as defence production, insurance, pension and multi-brand retail.

The committee headed by economic affairs secretary Arvind Mayaram, which submitted its report to finance minister P Chidambaram, has suggested that the investment cap in defence be raised from 26% to 49%, while in case of others, it should be hiked to 74%.

Last year's decision to allow 51% FDI in multi-brand retail saw stiff political opposition with Mamata Banerjee-led Trinmaool Congress walking out of the UPA coalition at the Centre. In case of insurance and pension, the government has failed to muster support for the passage of the two legislations for the past nine years, which will allow higher foreign investment in the two sectors. Similarly, the defence ministry has turned down repeated attempts to allow greater participation by foreigners, arguing that it will compromise national security.

The government is considering allowing 100% FDI in telecom, instead of the existing cap of 74%, a move which is expected to go through, without stiff opposition. Further, the panel has suggested allowing 49% FDI in public sector banks instead of 20%, a proposal that will again require legislative amendment.

The government is desperately trying to attract overseas investment and trim a widening current account deficit, which hit a record 6.7% of GDP in the quarter-ended December 2012. This has led to a weak rupee and raised concerns about the health of the economy. The government is pushing for greater foreign inflows to ensure that the forex reserves are not impacted by the widening trade and current account deficits.

FDI inflows fell 38% in 2012-13 to $22.4 billion, from over $35 billion in the previous year, adding to the pressure. Between January and March 2013, inflows have declined by 6% to just under $5.5 billion, data on the industry department website showed.

Mayaram told reporters that the recommendations would have to be acted upon by the industry department. A senior industry department officer told TOI that consultations with other ministries would soon commence for raising the investment ceilings and allowing more FDI through the automatic route. "But at the end of the day it's a political call and a final decision has to be taken at the ministerial level," said the officer, who did not wish to be identified. The committee has suggested that FDI inflows up to 49% in sectors such as single-brand retail, be put on the automatic route. This means that companies would only have to inform RBI after making the investment.

Source : timesofindia.indiatimes.com