India plans to eliminate the cap on foreign-direct investment in telecommunications and raise the limit in defense to lure funds and boost the rupee, two Finance Ministry officials with direct knowledge of the matter said.
Overseas investors would be able to own all of a telecoms company, up from 74 percent currently, with the ceiling in defense rising to 49 percent from 26 percent, the officials said, asking not to be identified as the information isn’t public. The changes are expected to be announced late June or early July, they said.
Finance Minister Palaniappan Chidambaram said in March a review of foreign-direct investment caps had begun, part of a government push to woo capital, fund a record current-account deficit and revive economic growth. The imbalance in the broadest measure of trade has weighed on the rupee, which plunged to its weakest level on record this week.
Telecoms and defense are the two major areas of the economy where investment caps are set to be eased, the officials said. Minor adjustments may be made in other industries, they said, without giving further details.
The government can announce changes in the foreign investment caps for defense and telecoms without Cabinet or Parliament approval, one of the officials said.
Finance Ministry Spokesman D.S. Malik declined to comment when asked about the plans.
The rupee fell as much as 1 percent to a record low of 58.705 per dollar in Mumbai today. The S&P BSE India Sensex (SENSEX) index dropped 0.6 percent.
Prime Minister Manmohan Singh began a series of policy changes in September to spur expansion in Asia’s third-largest economy and avert a credit-rating downgrade.
The 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 ($351 million), taking advantage of the changes.
Singh’s policy push has foundered in recent weeks as protests over alleged graft in government disrupted parliament, impeding bills seeking to allow overseas companies to invest in the pensions industry for the first time, and hold as much as 49 percent of insurance businesses.
Foreign-direct investment slid about 21 percent to $36.9 billion last fiscal year compared with 2011-12, government data show.
The current-account deficit widened to $32.6 billion in the last quarter of 2012, equivalent to 6.7 percent of gross domestic product. Economic growth was 5 percent in the year ended March, the slowest pace in a decade.
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