Govt hikes FDI in defence to 49 pc, railway gets 100 pc

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SME Times News Bureau | 07 Aug, 2014
The union cabinet Wednesday approved a proposal to allow 100 percent foreign direct investment (FDI) for building railways infrastructure also approved a proposal to raise FDI ceiling in defence sector to 49 percent from the present 26 percent.

Foreign capital in railways was not allowed till now.

However, the new government led by Prime Minister Narendra Modi has been pushing for it to build infrastructure projects such as high-speed railways and railway lines to and from coal mines and ports.

Currently, the cash-strapped railways cannot fund these projects without private participation. Foreign players from Japan and China are said to be keen to participate in building up of the infrastructure.

The proposal sought to allow FDI participation in erecting projects relating to electrification, high-speed tracks and suburban corridors.

Last-mile connectivity to boost business activity in and around ports and mines has been proposed through formation of special purpose vehicle (SPV) companies under the public private partnership (PPP) model.

The union cabinet also approved a proposal to raise the foreign direct investment (FDI) ceiling in defence sector to 49 percent from the present 26 percent.

The move is designed to boost domestic defence industry of the country that imports up to 70 percent of its military requirements.

Budget 2014-15 presented to parliament last month hiked the composite cap of foreign investment to 49 percent to be approved through the Foreign Investment Promotion Board (FIPB) route and with control of the enterprise to be in Indian hands.

Currently, the government permits 26 percent FDI in defence manufacturing.

"India today is the largest buyer of defence equipment in the world. Our domestic manufacturing capabilities are still at a nascent stage," Finance Minitsre Arun Jaitley had said presenting his maiden budget.

"We are buying a substantial part of our defence requirements directly from foreign players, companies controlled by foreign governments and foreign private parties are supplying our defence requirements to us at a considerable outflow of foreign exchange," he had added.