India Panel Said to Back Looser FDI Caps Amid Record DeficitSiddhartha Singh and Unni Krishnan
An Indian Finance Ministry panel has recommended easing foreign investment rules in more than a dozen industries to help fund a record current-account gap, according to three government officials with knowledge of the matter.
Overseas investors would be able to own all of a telecommunications company under the proposals, up from 74 percent, with the ceiling for retail chains selling multiple brands rising to 74 percent from 51 percent, the officials said, asking not to be identified as the information isn’t public. The defense cap would rise to 49 percent from 26 percent, they said.
India faces the widest current-account deficit in the BRIC group of largest emerging nations, which also includes Brazil, Russia and China, adding pressure for steps to attract capital to finance the shortfall. The rupee, weighed down by the imbalance, slid to a record low against the dollar last week and has weakened 7.5 percent this quarter, the biggest drop in Asia.
Steps toward liberalization “are good to boost sentiment,” said Madan Sabnavis, chief economist at Credit Analysis & Research Ltd. in Mumbai. “But what’s more important is creating an enabling environment as doing business in India is becoming a big headache. Why will investments come to India when things are much easier in other countries?”
The limit for news broadcasting and print media would climb to 49 percent from the current 26 percent, according to the recommendations of the panel headed by Economic Affairs Secretary Arvind Mayaram, the officials said.
Other industries where investing would become easier include insurance, retailers selling single brands, tea and tea plantations, courier services, asset reconstruction, public-sector petroleum refining, and commodity and power exchanges, the officials said.
The rupee strengthened 0.2 percent to 58.6775 per dollar as of 11:41 a.m. in Mumbai. The S&P BSE Sensex index slid 0.3 percent. The yield on the 8.15 percent bond due June 2022 was little changed at 7.48 percent.
The review of investment caps is part of a nine-month push by Prime Minister Manmohan Singh’s government to fight the slowest growth in a decade and avert a credit-rating downgrade.
Other steps have included liberalization of foreign investment limits in the retail and aviation industries, faster approvals for public works, lower levies on overseas buyers of local bonds and higher taxes on gold imports.
Etihad Airways PJSC agreed in April to buy a 24 percent stake in Mumbai-based Jet Airways (India) Ltd. for 20.6 billion rupees ($350 million), taking advantage of the changes.
Fitch Ratings revised India’s credit-outlook to stable from negative on June 12, providing some succor for Singh, whose coalition has faced graft scandals as well as depressed growth.
Foreign-direct investment slid about 21 percent to $36.9 billion in the last fiscal year from the previous 12 months.
The current-account deficit widened to $32.6 billion in October through December, equivalent to 6.7 percent of gross domestic product. Economic growth was 5 percent in the year ended March, the slowest since 2003.
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