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Defence, telecom FDI push

New Delhi, July 16: The Centre today relaxed rules on foreign ownership of telecom and military equipment firms, looking for leeway against the backdrop of objections by the home and defence ministries.

The decisions technically allow 100 per cent foreign direct investment in defence and telecom, subject to approvals.

In defence, the Centre has retained the regular limit at 26 per cent. But a case-by-case clause that requires permission from the cabinet committee on security (CCS) has not mentioned any specific cap. Any investment beyond that will be allowed only if it ensures access to the latest technology.

This suggests full foreign ownership could be permitted by the CCS if the technological requirement is met and other concerns are addressed.

Another striking change is the decision to allow 100 per cent FDI in telecom, which makes India the third big economy after the US and the UK to allow full foreign ownership in the segment.

China has a 49 per cap on FDI in telecom and Japan 83.3 per cent. According to the new rules in India, if the foreign ownership crosses 49 per cent, approvals have to be taken.

After today’s changes, analysts expect UK giant Vodafone and Norway’s Telenor to buy out Indian partners.

Commerce minister Anand Sharma, who announced the decisions after a three-hour meeting of the cabinet, stressed that “all decisions were taken through consensus.”

The announcement on defence was carefully worded, saying the CCS would “approve proposals on a case-to-case basis beyond 26 per cent which are likely to result in access to modern and state-of-art-technology”.

Defence minister A.K. Antony, who feels the sector is too sensitive to be controlled by foreign investors, had written to Sharma questioning his proposal to allow more FDI.

Many of the other changes did not aim to raise the FDI limit, but to speed up government clearances. (See chart)

Instead of being cleared by the Foreign Investment Promotion Board (FIPB) — a body of secretaries which often takes several months to clear a proposal — the approvals will be “automatic”. This means the RBI will have to be intimated while making the investments.