Govt urged to raise FDI limits

NEW DELHI: An Indian ministerial panel urged the government to raise foreign direct investment (FDI) caps in a host of sectors including telecom, petroleum and civil aviation as part of a move to liberalize the economy.

It is a part of a desperate bid by India, which has set a target of attracting $10 billion in foreign inflows every year, to catch up with China, Asia's second biggest economy, in the foreign investment race.

India, Asia's third largest economy, attracted FDI of just $4.4 billion in 2002. That compares with $52.7 billion received by China and inflows of $9.10 billion to Korea, Asia's fourth-ranked economy.

A senior government official, who did not want to be identified, told reporters the panel recommended raising the FDI limit in telecom to 74 percent from 49 percent and increasing the FDI ceiling in civil aviation to 49 percent from 40 percent.

"A group of ministers today (Thursday) met to consider proposals with regard to raising sectoral caps for various sectors," the official said.

"The recommendations will be placed before the cabinet. It is just a step away from becoming a policy."

He said the recommendations would not form part of the federal 2003/04 budget to be unveiled by Finance Minister Jaswant Singh on Friday.

The panel also said foreign airlines should be allowed to hold 49 percent stakes in domestic carriers. Until now, government rules allowed 40 percent FDI in domestic airlines but prohibited foreign carriers from holding any stake.

The official said the panel did not discuss the FDI limit in the banking sector.

Bank stocks have risen in recent weeks on the back of hopes that the government will lift foreign investment limits in the sector. The panel urged the government to raise the FDI limit in airports, oil marketing as well as scientific and technical journals to 100 percent from 74 percent.

The official said the panel recommended that 100 percent FDI be allowed in state-run oil refining companies. "FDI up to 100 percent is allowed for private companies and the panel has favored inclusion of state-run refiners."

The panel suggested raising the FDI cap in Internet service providers without gateways to 100 percent up from 49 percent. Strong FDI inflows are needed for the Indian economy to post double digit growth rates needed to cut poverty levels in the world's second most populous country.

The economy is expected to grow at 4.4 percent in 2002/03, down from 5.6 percent in the previous year,