India’s ruling United Progressive Alliance government is planning a major revamp of its FDI regime in a determined bid to encourage more FDI inflows into the country's economy. A committee headed by the finance secretary Arvind Mayaram has prepared a report recommending a far more liberal policy, including the raising of various sectoral caps on FDI. The report is currently being discussed by various ministries. After taking into account their feedback, an official announcement in this regard is expected towards the end of July.
India is expected to further liberalise its FDI regime by raising the caps, for instance, on multi-brand retail from 51% to 74% and in airlines from 49% to 74%. In telecommunications, the intention is to allow complete foreign ownership from the existing FDI limit of 74%. The FDI caps might be raised to 49% in sectors where foreign ownership and control is not allowed such as defence, where it is currently limited to 26%, while mandatory Foreign Investment Promotion Board clearances may be abolished. 

However, the government is divided on whether raising sectoral caps will actually help the country to attract FDI. The Commerce Ministry feels that raising the cap to 74% in multi-brand retail might not make much of a difference as FDI has not increased since 51% FDI was allowed. The Civil Aviation Ministry is equally unenthusiastic about raising the limit to 74% as it still testing the waters with the current 49% cap, and controversy still surrounds the recent attempt by Abu Dhabi-based airline Etihad to buy 24% of Indian airline Jet. The Defence Ministry, too, has strongly opposed raising the FDI limit to 49% as it considers the existing 26% limit as “good enough”.
Clearly, there are a lot of issues that need to be resolved before India's liberal new FDI policy is announced. To kick-start more interest in multi-brand retail, for instance, there is a view that it is not the cap that is the problem but the riders associated with the existing policy. Accordingly, there are suggestions to dilute the conditionalities on mandatory sourcing from small and medium-sized enterprises and the requirement to locate only in metropolises. If the feedback from the ministries is any indication, the policy has to be fine-tuned to differing sector-specific realities.
N Chandra Mohan is a business and economics commentator based in New Delhi.