Government reviews FDI caps; may help defence, insurance sectors

NEW DELHI: The govt is looking to review foreign direct investment caps for sectors such as defence, insurance and plantations, and look at the processes that can be eased to streamline the regime.
While most sectors have a liberal regime where automatic approvals aren't needed, the department for promotion of industry and internal trade is looking at how investment norms for defence can be made more attractive as govt seeks to move more manufacturing in the strategic sector to India.Current rules allow 100% FDI in the sector, wherever the entry of an entity results in access to modern technology or "for other reasons to be recorded".
Review comes as India sees FDI flows stagnate
FDI up to 74% allowed under the automatic route, but there are strings attached including industrial licensing for certain sectors and for small arms production and there are riders within that, which may be reviewed.
In case of insurance, a contentious sector since it was opened up to overseas players 25 years ago, FDI in a general or life insurance company is capped at 74%, while 100% FDI is allowed in insurance intermediaries. While general insurance companies turn profitable in a few years, generating funds for reinvestment, life insurance remains a capital-intensive business, requiring Indian and foreign partners to pump in equity for six-seven years. The review comes even as there is sufficient competition in the sector, and a majority of life insurance companies are now profitable.
But getting a nod for insurance, as well as plantations is not going to be easy, especially when the rationale for a review of the regime for the latter is unclear with 100% allowed in tea, coffee, rubber and several other segments.
Given BJP's stand on insurance when it was in the Opposition, Congress and its allies from the INDIA bloc are not going to agree to an increase easily at a time when govt is unlikely to push contentious changes through the legislative route.
Officials said the review was meant to ensure smooth flows and the idea was also to ensure that timelines involving inter-ministerial processes were adhered to, which was not always the case especially when security clearances were required.
The review comes at a time when India is seeking greater investments and has seen FDI stagnate despite its pitch for roping investors using the 'China Plus One' plank. The changes, if any, may be part of the budget announcements.