Anand Sharma to pitch for higher FDI limit in defence sector

NEW DELHI: Commerce and industry minister Anand Sharma will soon meet prime minister, finance minister and the defence minister in a bid to speed up the relaxation in the foreign investment limit in defence and other sectors.

The ministry is likely to put out a consultation paper soon to take stakeholder feedback before initiating this reform.

"A composite view on FDI issues in various sector including in defence can only be taken after High level consultation, taking in the views of all stakeholder on a discussion paper and after the input from the relevant ministries and departments," a senior department of industrial policy and promotion official told ET.

A formal cabinet note on the issue would be floated only after these consultations, the official said.

FDI caps are pegged broadly at five levels 26%, 49%, 51% and 74%, and 100%.

There is a clamour for hiking the 26% foreign direct investment cap in the defence sector to increase local manufacturing to reduce reliance on imports and also conserve foreign exchange.

Prime Minister Manmohan Singh and finance minister P Chidambaram have also said that a review of FDI caps was on the cards as part of the United Progressive Alliance government's reform push to attract more investments.

A department of industrial policy in promotion discussion paper in 2011 had first suggested removing all foreign investment caps.

The record high current account deficit, which is expected to touch around 5% of GDP in the current financial year, has created urgency of steady capital flows.

The move has also been prompted by the fact that in some sectors, such as telecom, huge investments are required in infrastructure.

Some sections in the government support further liberalisation in defence production and telecom.

Telecom, on the other hand needs huge investment in infrastructure.

The latest Economic Survey advocated greater emphasis on FDI and review of current caps to help increase the quantum of FDI.

A finance ministry panel is also relooking at the sectoral caps along with the details of the change in FDI definition announced in the budget by Chidambaram.

"We (should) look at each FDI cap. If the cap is serving a purpose, we should continue with the cap, if the cap is no longer serving the purpose then we should either relax the cap or remove the cap...The FDI caps were laid down historically at different points of time...we are now into 22nd year of liberalisation...These caps must be looked into again," Chidambaram had said at an earlier press conference.

The panel is expected to finalise its recommendations by May.