Govt considering hiking FDI cap in defence sector: Rajan
New Delhi: Amid concerns over rising Current Account Deficit (CAD), the Finance Ministry Tuesday said the government is examining the scope for raising foreign direct investment (FDI) cap in various sectors including defence.
Currently, foreign direct investment (FDI) up to 26 percent is permitted in the defence sector.
"The intent is to expand the cap wherever possible, including defence ... The proposal for defence is being examined," Chief Economic Advisor to the Finance Ministry Raghuram Rajan told reporters here.
The Department of Industrial Policy and Promotion (DIPP) had mooted the proposal for hiking FDI limit in defence sector to 49 percent, a bill for which is pending in the Rajya Sabha since 2008.
In March, Commerce and Industry Minister Anand Sharma had asked his Defence counterpart A K Antony to consider the proposal for raising FDI cap in the sector.
The move assumes significance after Prime Minister Manmohan Singh indicated that the government would further liberalise FDI regime in the coming months.
India opened up the defence equipment industry to private sector in May 2001, but restricted foreign participation to 26 percent in this capital-intensive sector.
India is one of the largest defence importers in the world with a minuscule component of exports.
The country at present imports over USD 8 billion worth of defence equipment and its defence budget is growing at an average of 13.4 percent annually since 2006-07.
The defence budget for the current fiscal is Rs 2.03 lakh crore, up 14 percent over the revised estimate of 1.78 lakh crore for 2012-13.
Currently, there are various sectors where FDI limit is below 100 percent. While in multi-brand retail it is 51 percent, in telecom and banking it is 74 percent.
While the Cabinet has approved hiking FDI limit in insurance and pension sector to 49 percent, a bill to that effect is pending in Parliament.
Further, in commodity exchanges, asset reconstruction companies, credit information companies and private security agencies, up to 49 percent FDI is allowed.
In his Budget, Finance Minister P Chidambaram had highlighted the need to attract foreign funds to finance the rising current account deficit (CAD), which is the difference between the inflow and outflow of foreign currency.
CAD was 6.7 percent of GDP in October-December 2012 and is estimated to be as high as 5 percent for the 2012-13 fiscal.
Besides, the government has taken several steps to attract foreign funds in the country by liberalising the external commercial borrowing (ECBs) norms.