Narendra Modi prepares to raise India’s FDI limits

May 30, 2014 10:39 am

Narendra Modi prepares to raise India’s FDI limits

By Victor Mallet in New Delhi

India’s new government is preparing to ease restrictions on foreign direct investment in the country, including in arms manufacturing, as part of its plan to boost economic growth and create jobs, government officials in New Delhi said on Friday.

Although Bharatiya Janata party leaders had signalled before their election victory that they intended to liberalise India’s complex foreign investment regime, shares in affected Indian companies rose sharply in response to news of reform plans drafted by the ministries of finance and commerce and industry.

One proposal is to raise the limit on foreign investment in defence industries from 26 per cent today to 49 per cent, 74 per cent or even 100 per cent, depending on the amount of technological know how the investor is prepared to transfer to India.

Shares in BEML, Bharat Electronics and Pipavav Defence jumped by as much as 8 per cent in early trading on Friday.

Four years ago, India overtook China to become the world’s biggest arms importer – partly because of the inadequacies of Indian defence businesses – and it is eager to make more equipment at home, both to improve security of supply and to cut its import bills. Arun Jaitley, appointed finance minister and interim defence minister by Prime Minister Narendra Modi, said this week he was “personally willing to examine” a review of the existing limit.

Another draft plan is for foreign stakes of up to 49 per cent in any sector of the economy to be approved automatically, except where specifically excluded.

Business leaders disappointed by corruption, bureaucracy and indecision during the past 10 years of Congress government have applauded Mr Modi’s promises of liberalisation and his enthusiasm for investment.

“We want a ‘De-control Raj’,” said Sidharth Birla, president of the Federation of Indian Chambers of Commerce and Industry, as he called for easier rules governing the conduct of business. “Unless we can show our manufacturing competitiveness we will never be considered an economic or an industrial power.”

More video

Ficci has published its wishlist of government moves to boost the economy and revive business confidence, including reforms to India’s highly restrictive labour laws and the publication of a “road map” to increase growth from less than 5 per cent annually at present to 8 per cent by 2017 and more than 10 per cent in 2020.

Gross domestic product in the quarter to March grew 4.6 per cent year on year, the government said on Friday, and over the whole 2013-14 fiscal year it was up 4.7 per cent, slightly lower than previously estimated.

Mr Modi, meanwhile, has told ministers and bureaucrats of his own 10-point list of priorities for the new administration, including a focus on infrastructure and the economy and improved inter-ministerial co-ordination.

Apart from easing restrictions on foreign investment, the Modi government is expected to move quickly to approve big transport, mining and industrial projects stalled for want of environmental clearances and to relaunch a plan approved by all major parties for a nationwide goods and services tax.