India to Raise Foreign Investment Caps

India to Raise Foreign Investment Caps

India, on Tuesday, decided to allow 100% foreign ownership in telecommunication companies and ease overseas-investment rules for several other sectors, with an aim to attract long-term foreign investment to boost sagging economic growth.

Meeting of senior ministers called by Prime Minister Manmohan Singh decided to scrap the requirement of government approval for certain levels of foreign investment in single-brand retail operations, power exchanges and petroleum refining, Trade Minister Anand Sharma told a news conference.

In defense manufacturing, foreign ownership will be allowed beyond the current 26% limit, but on a case-to-case basis, Mr. Sharma said.

Still, the decision need approval of the federal cabinet. The cabinet is likely to clear the decision next week, he said.

Total foreign direct investment in India fell to $22.42 billion in the last fiscal year from $36.50 billion in the previous year, partly due to the slowdown in the economy, according to government data.

Foreign investors can currently own up to 74% of telecom companies, a cap that would be lifted if Tuesday's decisions are cleared by the federal cabinet.

In power exchanges and petroleum refiners, foreign investors won't have to seek government approval for up to 49% ownership, which is also the total cap for these sectors. In the insurance sector, the government won't require approval for stakes of less than 49% once Parliament clears legislation to increase foreign ownership to 49% from the current 26%.

Yashwant Sinha, a leader of the main opposition Bharatiya Janata Party, said this step alone won't bring in investment. "Mere raising of FDI [foreign-direct-investment] caps will not open the floodgates of foreign investment as the country's business environment has suffered a great deal in the past few years," he said.