Friday, 12 August, 2022
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Growth stagnant, Sitharaman promises to ease FDI norms but markets don’t buy it just yet

Finance Minister Nirmala Sitharaman says government intent on relaxing the cap on FDI in aviation, media, animation and insurance sectors.

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New Delhi: Finance Minister Nirmala Sitharaman Friday announced a slew of measures to attract foreign direct investment (FDI) in the country as the Modi government looks to boosting growth.

In her maiden budget speech, Sitharaman announced the government’s intent to further relax caps on foreign investment in sectors such as aviation, media, animation and insurance. She also promised to ease local sourcing norms in the single-brand retail sector.

At present, the FDI in the insurance sector is 49 per cent while it varies between 49 per cent and 100 per cent in aviation. In the media sector, while FDI is limited at 26 per cent in print, it is at 49 per cent in FM radio.

Also read: Budget Live: Govt following policy of disinvestment in non-financial PSUs, Sitharaman tells Lok Sabha

The measures, however, did not elicit a positive response from the stock markets. The benchmark Sensex was trading at 39,825, down 82 points from the previous close at 11.45 am Friday.

Foreign inflows down for the first time under Modi govt

The first five years of Modi government had seen many sectors being opened up for foreign investment and removal of red tape, particularly the abolition of the foreign investment promotion board and the allowing of automatic investment in many sectors. These steps saw an increase in foreign inflows but in 2018-19, the flows contracted for the first time in the Modi government — they fell to $44.37 billion from the $44.85 billion in the 2017-18 fiscal.

To encourage foreign portfolio investors, Sitharaman also announced a relaxation in foreign portfolio investment cap in the secondary market. At present, foreign portfolio investors cannot hold more than 24 per cent in a company. Sitharaman, however, has suggested removing the cap and increasing it to the sectoral foreign investment limits. The companies though will have an option to lower the threshold for FPI holding in their firm.

Sitharaman also announced that India will host an annual global investor meet with the National Infrastructure and Investment Fund acting as an anchor.

Also read: Economic slowdown narrows India’s Q4 current account deficit to lowest in 2 years

The government is hoping that the slew of measures will help in reviving growth that has fallen to a five-year low of 5.8 per cent in the quarter ending March. The full year growth had also slowed down for the second consecutive year to 6.8 per cent in 2018-19 from 7.2 per cent in 2017-18 and 8.2 per cent in 2016-17.

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  1. Ex Raksha Mantriji would be aware that the defence sector received 1.6 crores ( $ 2,00,000 ) of FDI in the first term.

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