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Regulatory | 17 July 2013

Government Releases New Set Of FDI Reforms

by Pranali Shah
Government Releases New Set Of FDI Reforms
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To shore up more Foreign Investments, the government liberalized FDI limits in dozen sectors to boost the sagging economy. Stock markets reacted positively after the government relaxed FDI norms in several sectors.

In basic,cellular services and telecom sector, FDI was raised to 100% from current 74%. Of this, up to 49 % will be allowed under automatic route and the remaining through FIPB approval.

The idea behind the decision to increase FDI limit in telecom sector is to help the industry get fresh funds to lower financial burden. It was also assured that removing the cap will not pose any threat to country’s security as the real concern was the imported equipment.

The FDI cap for civil aviation and defence sector however remained unchanged at 49% and 26% respectively. Besides civil aviation, it was observed that no view was taken on relaxing FDI caps in airports, media, brownfield pharma and multi-brand retail.

In the Insurance sector, it was decided to raise the FDI cap from 26% to 49% subject to Parliament approval. FDI cap in credit information companies was raised to 74 % from 49 %

100% FDI was allowed in single brand retail. It was decided to allow 49% under the automatic route and beyond through the FIPB. In courier services too, it allowed 100% under automatic route.

In case of PSU oil refineries, petroleum refineries, tea plantation, commodity bourses, power exchanges, stock exchanges, depositories and clearing corporations, FDI will be allowed up to 49% under automatic route.

FDI in asset reconstruction companies was also raised to 100% from 74%; of this up to 49% will be under automatic route.

India's GDP is growing at its slowest pace in a decade, and inflation is near double digits. Showing openness to long-term foreign funding would help to replace the economy's reliance on hot money with more stable sources of overseas financing.

Global investment bank Morgan Stanley said these measures will reduce some pressure but the direction will be still driven by trend in US dollar until India’s current account stays higher than 2.5% of GDP. Currently, the underlying CAD is around 4.5 % of GDP.

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