A major revamp of FDI policies is being considered for bridging the current account deficit (CAD), strengthen the rupee and spur growth. In his Budget speech, finance minister P Chidambaram said the country will require $75 billion of foreign capital inflows annually in the next few years to bridge the CAD.
While there is a need to curb gold imports and boost domestic output of oil and coal to narrow the trade gap, a higher FDI inflow will not just help in fund the CAD but also boost growth and jobs. A panel headed by DEA secretary Arvind Mayaram has proposed raising the FDI limits in a number of sectors including telecom, defence, aviation, multi-brand retail and PSU banks. Government data shows that limiting FDI cap at 26% as in defence have constricted FDI flows in that sector. While political impassse has prevented the UPA from raising the FDI limit in insurance and opening up the pension sector, regulatory hurdles and red tape have also contributed to the slowing of foreign investment. Taxation also matters as bulk of the FDI was routed through tax havens like Mauritius.
