FDI limits for defence, railways to be hiked; e-commerce to wait..

The government is set to clear a higher limit of foreign direct investment (FDI) in railways and defence but a plan to allow foreign investment in e-commerce has been put on the backburner.

According to the plan, FDI up to 100 per cent would be allowed under the automatic route in railway infrastructure projects. This would also include projects such as high-speed train systems, suburban corridors and dedicated freight line that are executed under public-private partnership (PPP) mode.

However in strategic border areas, companies may have to take prior permission from the Foreign Investment and Promotion Board (FIPB).

“Due to security concerns in border areas, there is a view that clearance from the ministry of home affairs should be taken,” said an official.

In defence sector, the policy would remain the same except that the FDI cap of 26 per cent would be raised to 49 per cent.
“A higher FDI cap of 49 per cent, when read along with the relaxed industrial licensing policy for defence production would give a big fillip to domestic production of defence equipment,” said another official, pointing out that currently, nearly 70 per cent of the country’s defence  requirements are imported.

“The proposals for enhancing the FDI cap in railways and defence are likely to be taken up by the Cabinet in the next fortnight or even earlier. The department of industrial policy and promotion is finalising these,” said the official.

The move comes at a time when the Cabinet Committee on Economic Affairs has approved 49 per cent FDI in the insurance sector.
But the government is unlikely to go ahead with permitting FDI in e-commerce for now. Though the department of industrial policy and promotion had in January floated a discussion paper on allowing foreign funds in the sector, the government is of the view that it could impact domestic players.

Significantly, the Union Budget 2014-15 while announcing a liberalised FDI caps for insurance, railways and defence was silent on
e-commerce.

“Further, there is also a view that by allowing FDI in e-commerce there could be backdoor entry of whole sale retailers in the country,” said the official, adding that the Budget has already allowed foreign retailers who manufacture in the country to sell their products online.

“As long as the manufacture of a product takes place in the country by a company that is in line with the FDI policy, there is no problem if they want to sell their products online. Such companies have now been given clarity in the Budget,” said the official.