The Hindu : Business : Budget set to lift FDI caps in key sectors

Online edition of India's National Newspaper
Wednesday, Feb 23, 2005

Business

Business

Budget set to lift FDI caps in key sectors

By Sushma Ramchandran

NEW DELHI, FEB. 22. The forthcoming budget looks set to move forward on liberalising foreign direct investment policies in key sectors such as construction, retail, insurance and pension funds. Despite continued opposition from the Left parties, the UPA Government is seeking greater opening up in the hope of raising FDI inflows to China's level over the next ten years. The efforts to bring foreign funds into infrastructure sectors such as construction are aimed at raising the resources needed for housing and urban development while foreign players in financial services will also bring about a huge infusion of funds into the country.

Official sources, which underline the critical importance of raising the availability of investible resources through higher FDI inflows, point to the massive construction projects under way in China in preparation for the Olympics. The role of foreign players in that country is far larger than here, they point out, where FDI in construction is still at a nascent stage. Proposals now being considered envisage that FDI be allowed into projects entailing construction of five lakh square metres and above. This is to ensure that FDI is available for large housing and construction projects where sizable resources are required.

At present 100 per cent foreign direct investment is allowed in the construction sector but only for projects covering over 100 acres. The stipulation, it has been recognised, is unrealistic as it is rare to find projects other than townships where this land area is either utilised or even available. The main change that is, therefore, proposed to be made is to allow FDI into projects of five lakh sq. metres and above. This will enable large corporates to enter into construction of malls and residential projects.

In the retail sector, the Commerce and Industry Minister, Kamal Nath, has already made it clear that he is in favour of allowing 100 per cent FDI but with the rider than this will be only for branded shops. In other words, multinationals can set up shop selling a single brand. The aim is to provide opportunities for investment from abroad while at the same time ensuring that small retailers in this country are not affected adversely. The proposal is expected to be included in the 2005-06 budget proposals, barring any strenuous last-minute objections from the UPA Government's partners.

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