The Opposition has blasted the government decision to liberalise FDI norms in 11 sectors saying the move was forced by the US and other Western nations, while industry groups welcomed the move. The Bharatiya Janata Party described the government's decision to increase FDI in telecom and insurance as a "panic reaction" when the economy is going downhill. "The panic decision taken by the government on FDI is not going to impact the Indian economy, which is indeed in a terminal state," BJP deputy leader in the Rajya Sabha Ravi Shankar Prasad told reporters. "The story of India has come under a serious cloud under the leadership of Sonia Gandhi and prime minister Manmohan Singh."
The government Tuesday had announced liberalisation of FDI norms and caps in about a dozen sectors. These include increasing the cap to 100 percent in telecom and 49 percent in insurance, allowing foreign capital beyond 26 per cent in defence production and fast-tracking FDI in sectors such as oil refineries, commodity bourses and stock exchanges. "FDI in telecom sector has been increased from 74 to 100 percent. 74 percent is a dominant investment. If at 74 per cent India is not able to get foreign investment, then how can one expect this at 100 per cent," Prasad said.
The BJP asked if the FDI decision was a fallout of finance minister P Chidambaram's recent visit to the US, where, the BJP alleged, he drew flak for problems with the economy. On allowing 49 percent FDI in insurance, the BJP said the matter is with the parliamentary standing committee and an understanding had been reached, in which the Congress is also a party, that the limit should be 26 percent. "Then why this panic reaction?" Prasad asked. Left parties lambasted the government for "mortgaging" the economy and demanded immediate rescinding of the decision. "This bankrupt policy of the government is motivated by the need to attract more foreign capital flows to meet the widening current account deficit. But the supine attitude of the government to foreign capital is only going to lead to further flow of profits and resources out of the country," the CPM Politburo said in a statement. "The UPA government is out to mortgage the economy to foreign capital." Demanding withdrawal of the decision, the CPI said the government had opened up the telecom sector when the country was "yet to overcome the loot and losses due to 2G spectrum scam."
However, India Inc gave a thumbs-up to the FDI decisions, calling them the most timely reform that would boost investor sentiment significantly. "While industry looks forward to more, this revision of caps is a huge step in setting off these reforms," CII said in a statement. The CII said higher FDI in insurance would unshackle the industry and drive orderly growth and long-term development of the insurance and pension sector in the country. On defence sector, "critical concepts such as 'state-of-the-art' technology would need to be defined. Clarity and transparency needs to be ensured while allowing higher FDI," Banerjee said. Ficci said it "welcomes the announcements for raising FDI caps" in telecom and insurance sectors and for enabling the possibility in defence. "What we needs are JVs that enhance its strategic capabilities like 'Brahmos' which has catapulted India to the group of nations with supersonic cruise missile capabilities, with IPRs residing within the country giving it export potential," Ficci president Naina Lal Kidwai said and added that this should be followed by easy rules on mergers and acquisitions so that much needed consolidation is facilitated. The new norm on telecommunication segment is a positive step toward economic growth, especially in the current depressed situation, KPMG (India) Partner-telecom Jaideep Ghosh said. Industry bodies are looking forward to the government's decision on FDI limits in sectors including civil aviation, construction and real estate, information and broadcasting and media, banks and multi-brand retail.
Some industry experts believe that 100 per cent FDI in telecom can attract investments of as much as $10 billion. The industry also wants to see the final M&A guidelines before deciding on their investment strategy. "FDI limit is expected to provide a much-needed boost to the sector and is likely to attract approximately $10 billion worth of investments in the near to long term," said
Prashant Singhal, global telecommunications markets leader at EY. "There is an expectation for further consolidation and buy-outs in the telecom space."
