The government could announce plans to hike foreign direct investment in sectors including defence, railways and e-commerce in the Union Budget 2014-15 though it is unlikely to move ahead with liberalisation of the insurance sector.
“Sectoral FDI caps may be hiked for railways and e-commerce to 100 per cent. For defence too, the FDI limit will be increased but it will not be under the automatic route,” said a senior government official.
While plans to liberalise foreign investment in these sectors have been pending for long, the NDA government has also stressed its intent to encourage capital inflows.
“My government will follow a policy of encouraging investments, including through FDI; which will be allowed in sectors that help create jobs and assets,” President Pranab Mukherjee had said on Monday, adding that FDI will be permitted in defence production as well. A formal announcement unveiling plans for foreign investment is expected in the Budget next month.
However, the government is unlikely to tinker with the FDI limit for insurance sector, leaving it unchanged at 26 per cent. But to help insurance companies raise capital, the government could introduce a cap of 23 per cent for foreign institutional investors, in addition to the FDI cap of 26 per cent. A wishlist submitted by the insurance sector to the minister has also soft paddled hiking of the cap.
Finance minister Arun Jaitley in his discussion with the department of financial services last week had asked them to consider other means to help insurers raise capital. This was in line with the stand of the Standing Committee on Finance led by senior BJP leader Yashwant Sinha that had opposed the Insurance Laws (Amendment) Bill to raise the FDI cap for the sector.
Earlier, a committee led by finance secretary Arvind Mayaram too had pitched for an overhaul of FDI caps across all sectors. At present, FDI up to 26 per cent is permitted in the defence sector while investments beyond that have to be routed through the Foreign Investment Promotion Board.
Meanwhile, global online retailers are not permitted to sell directly to consumers in the country although 100 per cent FDI is allowed in business-to-business (B2B) e-commerce.
Similarly, FDI in railways construction is not allowed although it is permitted in the manufacture of components by private companies that supply to the network.