The government is set to review foreign direct investment (FDI) caps in defence, insurance, and plantations sectors, aiming to streamline the regime and attract more investments. The Department for Promotion of Industry and Internal Trade (DPIIT) is focusing on making investment norms more attractive, especially in the defence sector to boost domestic manufacturing.
Defence Sector
Current rules allow 100% FDI in the defence sector with conditions such as access to modern technology. The review may ease these norms to encourage more investments. Currently, FDI up to 74% is allowed under the automatic route, but it involves industrial licensing and other stipulations that may be revised.
Insurance Sector
In the insurance sector, FDI is capped at 74% for general and life insurance companies, while 100% FDI is allowed for insurance intermediaries. The review aims to address the capital-intensive nature of life insurance, which requires equity investment for several years. Despite sufficient competition and profitability in the sector, obtaining approval for changes may be challenging.
Plantations Sector
FDI in plantations such as tea, coffee, and rubber is currently allowed up to 100%. The rationale for reviewing this sector is unclear, but the government is considering easing the processes to ensure smooth investment flows.
Political Challenges
Changes in FDI caps, particularly in insurance, face political opposition. The ruling party’s previous stance on insurance when it was in opposition, coupled with resistance from Congress and its allies, makes it unlikely for contentious changes to pass through the legislative route easily.
Objective and Context
The review aims to ensure smooth FDI flows and adherence to inter-ministerial timelines, especially when security clearances are required. This initiative comes as India seeks greater investments amid stagnating FDI inflows, despite promoting the ‘China Plus One’ strategy to attract global investors.
Conclusion
The government’s review of FDI caps in defence, insurance, and plantations sectors seeks to make investment norms more attractive and streamline the approval process. This effort is part of a broader strategy to boost domestic manufacturing and secure greater foreign investments.
