A group of Indian cabinet
ministers late on Tuesday cleared plans to remove the foreign
investment cap in telecoms and relax overseas ownership rules in a host of
sectors in a new economic reforms push.
The moves are aimed wooing investors and kick starting the
struggling economy before the scandal-tainted Congress government faces voters
in general elections due by May 2014.
"We expect more foreign direct investment to flow in with
these decisions," commerce minister Anand Sharma told an evening news
conference.
The government is seeking to rebuild confidence in the economy
which grew at its slowest pace in a decade at five percent and boost the ailing
rupee which has hit a string of lifetime lows in recent weeks.
Among the steps, the ministers at a meeting chaired by Congress
Premier Manmohan Singh approved raising the ceiling on foreign direct
investment (FDI) in telecommunications to 100 percent from 74 percent.
They also decided to abolish the need for government approval
for certain levels of foreign investment in single-brand retail and petroleum
refining. In insurance, it approved raising the FDI cap from 26 percent to 49
percent.
But in the contentious area of defence, the FDI cap will remain
at 26 percent with proposals beyond that considered on a case-by-case basis.
The ministers' decisions will still require the approval of the
full cabinet -- likely to come at a meeting next week -- and the move to hike
the insurance cap requires parliamentary clearance, Sharma said.
The announcement came after Finance Minister P. Chidambaram
visited the United States for a second time in three months last week to
reassure foreign companies that India remained a hospitable place to invest.
"We welcome the move and it indicates that reforms are
underway," said Federation of Chambers of Commerce and Industry president
Naina Lal Kidwai.
FDI in India -- seen as vital to improving its shabby
infrastructure and boost manufacturing to employ its burgeoning youth
population plunged to $22.4 billion last year from 36.5 the previous year,
government figures show.
Underscoring foreign investor unhappiness with India, South
Korean steel giant Posco scrapped a $5.3-billion deal to build a steel plant in
the southern state of Karnataka due to land acquisition delays and local
opposition.
Economists say India needs foreign investment to spur growth and
also to close its wide current account deficit -- the broadest measure of
international trade -- that has alarmed global credit ratings agencies.
To improve India's investment attractiveness, economists say the
government must reduce the country's burdensome red tape, speed up slow project
approvals and lessen widespread corruption.
The government has been dogged by a string of graft scandals
during its second term in office, which has derailed many of its efforts to
push through promised pro-market reforms.
Last year, the government opened up the supermarket, civil
aviation and broadcasting sectors to wider foreign investment in a burst of
reforms after being accused of policy paralysis.
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