Foreign investment limits in different sectors where ceilings are not serving their intended purpose will be revisited, Finance Minister P Chidambaram today said.

“The Government is looking at FDI caps to see if they are indeed serving the purpose. Otherwise, the caps could be revisited,” he said at a meeting the Parliamentary Consultative Committee of the Ministry of Finance.

The agenda for the meeting was ‘The Current Account Deficit-Implications and Measures to Contain the Deficit.’

While India allows 100 per cent FDI in a large number of the sectors, there is a ceiling on foreign investment in sensitive segments like multi-brand retail, insurance, defence and telecom.

Government is keen on increasing foreign direct investment (FDI) ceilings to attract more inflows and finance the widening current account deficit (CAD).

Commerce and Industry Minister Anand Sharma yesterday had said he would soon move the Cabinet for raising FDI cap in telecom and defence sectors as the Government wanted to revive economic growth and spur investments.

Chidambaram said the major reason for India’s large CAD is that the country has huge dependence on import of certain items like oil, coal and gold.

India’s CAD, which touched record high of 6.7 per cent of GDP in the December 2012 quarter, is likely to be around 5 per cent in the 2012-13 fiscal. As per the RBI, India can sustain CAD in the range of 2.5 per cent.

Economic growth rate slipped to a decade low of 5 per cent in 2012-13 and FDI inflows during the last fiscal declined by 38 per cent to $ 22.42 billion in 2012-13.

Chidambaram said that despite recession in major economies, India continues to remain a desired destination for FDI and FII.

Chidambaram said that as world economies are in recession “we cannot do much on the external factors“.

All European economies (except Germany), Japan and other developing economies are in recession. Only US economy is showing some signs of revival.

He said despite all odds the Government was able to finance the CAD and also added around $3 billion to the forex reserves in 2012-13.

The Minister also expressed confidence that in 2013-14 also CAD will be financed without dipping into reserves.

He further said that the only way to contain CAD is to increase the domestic production of oil and coal and restraining the consumption of gold. In order to increase “our production, we must get our policies and priorities right as long term measures”, he added.

The Government, he said, is proactively working towards operationalisation of 215 stalled projects involving about Rs 7 lakh crore, with a view to giving a push to the production activity in the country.

In its mid-quarter monetary policy released earlier in the day, the Reserve Bank said the CAD in the current fiscal would be lower than that in 2012-13 on account of softening commodity prices in the international market and slump in gold imports.

(This article was published on June 17, 2013)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.