NDA likely to invite 100 per cent FDI in Railways, Defence and infrastructure in July Budget
Compelled by the urgency to woo foreign investment, which fell by one third between 2009 and 2014, the newly-elected Modi Government is likely to bring in big ticket reforms by inviting 100 per cent FDI in Railways, Defence and infrastructure in the forthcoming Budget in July. The Government will also explore other sectors and options to increase FDI in a big way in India.The exercise to take the views of all stakeholders has already started with the Commerce Ministry circulating a draft Cabinet note on opening the Defence sector to FDI.
The objective is to attract FDI in the core sectors to boost manufacturing and generate employment in all spheres including skilled and semi-skilled. The Indian and foreign industry was for long urging the Government to open up these sectors to induct state-of-the-art technology and expand the domestic industrial base in the shortest possible time.At present, only 26 per cent FDI is allowed in the Defence sector. The removal of the cap will be on a case-to-case basis, decided by the Cabinet Committee on Security (CCS) chaired by the Prime Minister.
This decision was taken last year after then Commerce Minister Anand Sharma mooted at least 75 per cent FDI in Defence and then Defence Minister AK Antony opposed it due to security considerations. However, a concession was given in the form of CCS taking a call if the 26 per cent cap is to be removed.The draft note favouring three different caps in the Defence sector including 49 per cent, 75 per cent and 100 per cent will now be studied by the Defence Ministry in the coming weeks.
All the stakeholders including Defence PSUs and armed forces will be consulted before the Government takes a final call. Incidentally, soon after taking charge, Defence Minister Arun Jaitley said here on Tuesday that the Vajpayee Government introduced 26 per cent FDI in the Defence sector and he would have a re-look at the present policy.The proposed FDI slabs include 49 per cent in case of no technology transfer and 74 per cent where there is a technology transfer. The no-cap policy should be reserved strictly for cases which bring in state-of-the-art technology, the note suggested.
However, entry though the automatic route may still be barred on account of security-related concerns, it said. Moreover, Foreign Investment Promotion Board (FIPB) will vet all FID proposals in the Defence sector to ensure security.
BJP in its manifesto had favoured allowing FDI in all sectors for asset and job creation and giving a thrust to manufacturing to pull up economic growth. In the backdrop, the Defence sector is seen as one of the most important manufacturing hubs and can help reduce imports. Moreover, during his election campaign Modi called for opening up the Defence sector and involving the Indian private sector in a big way. At present, India imports more than 70 per cent weapons and other related equipment.
In case of Railways, FDI may be allowed in projects like high-speed train systems, suburban corridors, high-speed tracks and freight lines connecting ports and mines. The Government is also planning to ease FID norms in construction and e-commerceThe UPA Government in March had sought approval from the Election Commission to liberalise FDI policy in Railways as Model Code of Conduct was in force. The DIPP had proposed 100 per cent FDI in high-speed train systems, suburban corridors, high-speed tracks and freight lines connecting ports and mines.
Foreign companies would be allowed to pick up 100 per cent stake in the special purpose vehicle that will construct and maintain rail lines connecting ports, mines and industrial hubs with the existing network. However, the Home Ministry and the Department of Economic Affairs had sounded a note of caution, citing security concerns, especially regarding investments from China.
The Home Ministry maintained that Chinese investments should be viewed with caution.Incidentally, the UPA Government in 2005 had cleared a proposal for 100 per cent FDI in the construction sector. Then Commerce Minister Kamal Nath had said 100 per cent FID was allowed under the automatic route in townships, housing built-in infrastructure and construction development projects.
In another decision in February this year, the UPA Government proposed to allow foreign investors to enter into an agreement with farmers to buy agricultural land, obviating the need for taking on an Indian partner. A company owned and controlled by an Indian and having foreign investment would be able to directly buy agricultural land from farmers. But a company controlled by an NRI would be able to buy such land only after it was converted to non-agricultural land.
Backing the BJP Government’s proposed move to open up Defence, Railways and infrastructure, the RSS on Friday justified the need for 100 per cent FD Investment in the Defence sector, saying the country must not depend on imports.
“Why should India depend on importing Defence equipment, right from fighter aircraft to submarines when we can manufacture (them) in the country,” RSS joint general secretary Krishna Gopal said in Nagpur, when asked to comment on the reported move to raise FDI limit in the Defence sector from the present 26 per cent to 100 per cent.
Talking to reporters on the sidelines of RSS’s annual third year training camp at Reshimbagh, Gopal said FDI will help accelerate Defence production in the country.