This should come as a big boost to Indian Economy and falling rupee. Indian Prime Minister, Mr. Manmohan Singh announced on Tuesday opening up of Foreign Direct Investment in 10 sectors, which include Defence production, Insurance, Petrol & Natural gas and Telecom as well.
Opening up FDI in defence was probably the most significant among all. Though the FDI cap remains the same at 26 percent as it was earlier, higher limits will now be considered for Cabinet Committee on Security approval in ‘state-of-the-art’ technology manufacturing.
See the Chart below to understand what percentages of FDI has been opened up through Automatic route or through FIPB approval on case to case basis. Some sectors require special Government agencies’ nod like in case of Defence where CCS approval is required.
In case of Automatic route, FDI can come into a company without any prior approval, whereas in some cases like Telecom and Retail, the FDI over and above the cap has to be approved by Foreign Investment Promotion Board.
Among other significant decisions, FDI in single brand retail has been increased to 49 percent under automatic route, while rest of 51 percent could be gained through FIPB approval process. This opens the door for companies like IKEA to have fully owned companies in India.
Insurance was another sector which had been pushing for increase in FDI limits and the center seems to have listened to them. FDI cap in Insurance sector has been increased from 26 percent to 49 percent under automatic route.
Indian Telecom companies may also see quite a juggle in their equity shareholding as 100 percent foreign equity is now possible. 49 percent through automatic route and 51 percent through FIPB approval process.
In my opinion, if this was on cards, they should have done it much earlier. But, better late than never. These FDI reforms are sure to help curb rupee depreciation and will give economy a much needed push.
What’s your take on these FDI reforms? Did you expect anything more?