India Today Online New Delhi, July 16, 2013 | UPDATED 04:08 IST

The Manmohan Singh government has set off another round of economic reforms with big hikes in foreign direct investment caps. Stepping into a political minefield, the government has changed FDI limits in as many as twelve sectors.

The Government on Tuesday liberalised FDI limits in twelve sectors, including telecom and defence.

Paving way for fresh investments in telecom companies, the government cleared 100 per cent FDI in telecom sector. To boost the sagging economy, the government also raised FDI in defence sector from 26 per cent to 49 per cent. But the hike comes with some conditions. 49 per cent will only be allowed with state-of-the art technology transfer.

FDI in 4 other sectors — gas refineries, commodity exchanges, power trading and stock exchanges have been allowed via the automatic route.

In the contentious insurance sector, it was decided to raise the sectoral FDI cap from 26 per cent to 49 per cent under automatic route under which companies investing do not require prior government approval. A Bill to raise FDI cap in the sector is pending in the Rajya Sabha.

Consensus on raising FDI limits in some sectors and relaxing the route in others was arrived at a meeting Prime Minister Manmohan Singh took with his key ministers, Commerce and Industry Minister Anand Sharma said.

In a surprise decision, civil aviation and media sectors have been left untouched.

It was decided to allow 49 per cent FDI in single brand retail under the automatic route and beyond through the Foreign Investment Promotion Board (FIPB).

In case of PSU oil refineries, commodity bourses, power exchanges, stock exchanges and clearing corporations, FDI will be allowed up to 49 per cent under automatic route as against current routing of the investment through FIPB.

The decisions taken on Tuesday were based on recommendations of Mayaram Committee which had suggested relaxing investment caps in about 20 sectors, but the meeting approved only in 12.

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

A similar dispensation would be allowed for asset reconstruction companies and tea plantations.

FDI of up to 100 per cent was allowed in courier services under automatic route.

Earlier, similar amount of investment was allowed through FIPB route. In credit information firms 74 per cent FDI under automatic route would be allowed.

Ironically, the approvals have come on the day when South Korean steel major Posco announced withdrawal from its Karnataka project. The project was a big FDI victory for the government with as much as 530 crore dollars expected to flow in the next couple of years. But red-tapism, assisted by local protests have forced the company out. It will however, continue with its Odisha investments.

Posco’s exit has added to the government’s headache. FDI has been falling steadily in the past few years. 2011-12 was seemingly an aberration.

Reasons for falling FDI inflows are simple. Foreign investors are worried about the rupee fall. But the major concerns are unstable policies and political uncertainty in the country.

- With PTI inputs

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