The Telegraph
Friday , May 23 , 2014
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Three areas to get FDI attention

New Delhi, May 22: Commerce ministry officials will pitch for the relaxation of foreign direct investment (FDI) norms in defence, railways and e-commerce in its presentation to the new government.

They are likely to root for 49 per cent FDI through the automatic route in defence to reduce the dependence on imports.

“Several steps to boost manufacturing growth and attract more FDI in sectors such as defence are to be proposed to the new government,” a senior official said.

At present, the government allows up to 26 per cent FDI in defence subject to the approval of the Foreign Investment Promotion Board. Investments beyond this ceiling need the clearance of the cabinet committee on security affairs.

However, ministry officials said they would recommend allowing up to 49 per cent FDI through the automatic route, but favoured 100 per cent FDI after due diligence by either the FIPB or the cabinet committee on security affairs.

FDI under the automatic route does not require permission from the government or the RBI. The companies need to just inform the authorities within a month of the receipt of funds.

India Inc contends that the size of the domestic defence market, estimated at $100 billion over the next five years, will attract foreign investors. The country can then set terms, which will facilitate the transfer of technology.

India is one of the largest weapon importers in the world. It ranks among the top 10 countries in terms of military expenditure.

At present, the country imports over $8 billion worth of military equipment and its defence budget is growing at an average of 13.4 per cent annually since 2006-07.


The ministry will also make a pitch for opening up e-commerce, which will unleash opportunities for domestic manufacturers and new entrepreneurs. The ministry had recently met all the stakeholders, including Google, Amazon and Flipkart.

The BJP manifesto has categorically stated that the party was opposed to FDI in multi-brand retail.

However, the party may not be averse to opening up the booming e-commerce sector to overseas investors, which will enable retailers to hawk products directly to online consumers.

At present, 100 per cent FDI are allowed in business-to-business (B2B) e-commerce but not in retail trading. It is also allowed in marketplaces where third-party sellers sell directly to shoppers through e-commerce platforms.

Online retail sales stood at $1.6 billion in 2013, according to research firm Forrester. It is expected to reach $76 billion by 2021, according to consultancy Technopak.


The relaxation of the FDI policy in certain railway sectors will also find its place among the recommendations.

However, FDI will not be allowed in passenger and freight network operations. At present, there is a complete ban on FDI in the railways, except in mass rapid transport systems.