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Panel for FDI hike in banking, insurance

The Planning Commission's steering group on foreign direct investment has recommended raising sectoral caps, including that on oil refinery from 26 per cent to 100 per cent, airports from 74 per cent to 100 per cent and insurance from 26 per cent to 49 per cent.

The report, which was submitted to Prime Minister Atal Bihari Vajpayee on Friday, also suggested that the sectoral cap on oil marketing be increased from 74 per cent to 100 per cent, civil aviation from 40 per cent to 49 per cent (including permission to foreign airlines), basic and mobile telephony from 49 per cent to 74 per cent, banking and financial services from 49 per cent to 100 per cent and real estate from zero per cent to 100 per cent.

The group, headed by Planning Commission Member N K Singh, suggested to the government to consider enactment of a Foreign Investment Promotion Law that incorporates and integrates aspects relevant to the promotion of FDI.

It called for domestic policy reforms in the power sector, urban infrastructure and real estate and expediting de-control and de-licensing to promote domestic and foreign investment.

The committee urged the states to enact a special investment law relating to infrastructure to expedite investment and remove hurdles in the sector.

The steering group considered the causes for sluggish FDI flows to India and has made a number of important recommendations for enabling the flow to increase substantially to around $8 billion per annum during the Tenth Plan.

Notwithstanding the significant improvement in FDI front since last year at a time when global flows have declined, both the need and the potential for a significant increase in such flows remain large, the report said.

The Committee noted that while privatisation and divestment of large enterprises has played an important role in FDI flows in many emerging markets, the divestment programme in India so far has not succeeded in eliciting any significant FDI flows.

The group called for empowering the Foreign Investment Promotion Board to give initial central level registrations and approvals where possible, with a view to speeding up the process of project implementation. The Committee suggested changing government rules of business to empower Foreign Investment Implementation Authority to expedite the processing of administrative and policy approvals.

It suggested that the aggregate FDI target for the Tenth Plan should be disaggregated in terms of sectors and relevant administrative ministries and departments, to increase accountability. This could help ensure that the policy pre-requisites for increasing domestic private investment and FDI are expedited by the departments concerned.

The Special Economic Zones should be developed as the most competitive destination for export related FDI in the world, by simplifying applicable laws, rules and administrative procedures and reducing red tape to the levels found in China. The focus should be on accelerated and immediate implementation of reforms that may take a much longer time in the country as a whole and not on tax sops.

The Committee said information aspects of the strategy should be refined in the light of the perceived advantages and disadvantages of India as an investment destination and should use information technology and modern marketing techniques.

The report said the Foreign Investment Promotion Councils should be transformed into the primary arm of the government for promoting FDI in India, with the Department of Industrial Policy and Promotion continuing to act as its secretariat.

The FIPC chairman should be a person of national and international credibility. The membership of FIPC should include a finance person, an economist, a legal expert and the secretary as an ex-officio member. There should be provision for two part-time members from the industry. The organisation should target specific corporations and interact with the CEOs and boards of these companies for enticing them to take investment decisions in favour of India. Besides, the authority should also constitute half a dozen special groups headed by ministers or equivalent functionaries to earmark a set of companies with which they should establish contacts, the report said.

Arvind Virmani, advisor, Planning Commission acted as member secretary of the group. Confederation of Indian Industry and Federation of Indian Chambers of Commerce and Industry were also represented on the group.

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