Industry bodies said the decisions will help attract much-needed capital, create jobs, encourage collaboration and benefit cash-starved small and medium enterprises (SMEs).
"Decision on FDI in railways and defence will send signal of the Modi government's commitment to economic reforms. Speed and consensus on Insurance Bill will be a big differentiator though," Assocham Secretary General D S Rawat said.
Pushing ahead with the reforms agenda, the Narendra Modi-led government yesterday approved raising FDI limit in the defence sector to 49 per cent and opened up the railway infrastructure segment for foreign direct investment.
Commenting on FDI in Defence, CII Director General Chandrajit Banerjee said: "This would definitely encourage MNCs to get into co-development and co-production arrangements with Indian companies. With this move, the Government has made its intentions clear to the world that we mean business and job creations in India".
"We expect that SMEs who are struggling to sustain their businesses due to the lack of capital and cash flows, would benefit in particular," he added.
PHD Chamber President Sharad Jaipuria said higher FDI in defence is encouraging and will go a long way to infuse innovation and to generate employment opportunities in the defense products manufacturing processes.
The FDI ceiling in the sensitive defence sector has been hiked to 49 per cent from current 26 per cent, with the condition that control in joint ventures for manufacturing of defence equipment will remain in Indian hands.
The move is aimed at boosting the domestic industry, which imports up to 70 per cent of its military hardware.
Welcoming the move to allow 100 per cent FDI in railway infrastructure, Ficci President Sidharth Birla said: "This overdue measure has happened at a time when the existing rail network and Indian Railways need funds to modernize and expand capacity to serve fast-growing needs of the economy".
Echoing similar sentiments, Banerjee said the decision "would help railways to mop up much-needed resources to modernize and upgrade its carrying capacity. It would attract newer technology, upgrade the facilities, improve throughput and help with the Ministry's vision of achieving a freight share of over 50 per cent by the Indian Railways".
The Cabinet approved allowing 100 per cent FDI in areas such as high-speed train systems, suburban corridors and dedicated freight line projects implemented in PPP mode.
Finance Minister Arun Jaitley in his Budget speech for 2014-15 had announced plans to increase FDI in the defence sector and open up the cash-starved government-owned railways.
The Cabinet gave approval to the announcements made in the Budget.
FDI will help strengthen rail infrastructure: Sitharaman
New Delhi, Aug 7 (PTI) A day after approving big ticket FDI in railways and defence, the government today said foreign investment in railways will help in strengthening infrastructure and asserted security will not be compromised.
Commerce and Industry Minister Nirmala Sitharaman told PTI that the Cabinet had taken the decision to ease the FDI policy in those areas of railways that are not going to affect security and sovereign authority of the sector.
"So, overall the control would be with the railways, ownership being with the railways and essential operations being kept with in the railways. Getting FDI, we thought would (help) in speeding up lots of handicaps which the railways is facing because they are unable to finance that and therefore it was taken as a conscious decision," she said.
Moving ahead with the economic reforms, the Cabinet yesterday cleared the long-delayed proposal of raising FDI limit in defence to 49 per cent and fully opened up the railway infrastructure segment, like high speed trains, for foreign investment.
The minister said all security-related concerns raised by the Home Ministry have been taken care of by the policy.
"There are factors of security, factors of our concern which will be kept in mind (before clearing any proposal). It is not going to be a simple walk in, put the money and build. No. Obviously there are processes, there are ministries which look into it," she said.
The Home Ministry had raised concerns with regard to rail infrastructure in border areas, particularly investments proposals from China.
According to estimates, the Indian Railways is facing a cash crunch of around Rs 29,000 crore and allowing of FDI will help mop up resources.
About FDI in defence sector, the minister said control will be there in the hands of Indians.In case, proprietary and latest technology are brought in with condition of control, that proposal will be cleared by the Cabinet.
"If it is state-of-the-art or there are going to be high technology involved, the Cabinet can always take a call that time but that is going to be an exceptional case rather than a regular flow of investment," she said.
When asked whether FDI proposals will be cleared through the government approval route or automatic, Sitharaman said: "If there are issues of concern about certain volume and areas of investment, consultation with FIPB and also if necessary the Cabinet Committee. All that is going to happen".
The FDI ceiling in the sensitive defence sector has been hiked to 49 per cent from current 26 per cent, with the condition that of the control in joint venture manufacturing defence equipment will remain in Indian hands.
The move is aimed at boosting domestic industry of a country which imports up to 70 per cent of its military hardware.
The proposal had been pending for several years as it was first mooted by the Commerce Ministry during the previous UPA government. However, the then Defence Minister A K Antony had blocked it, citing national security concerns.
The NDA government has been arguing that the FDI limit needs to be hiked in defence to help expand the domestic industrial base in the sector.
With the FDI nod with regard to the railways, the proposed Mumbai-Ahmedabad high speed rail corridor is expected to get a push. The construction of exclusive rail corridor for freight movement is also likely to be boosted.
Finance Minister Arun Jaitley in his budget speech for 2014-15 had announced plans to increase FDI in defence sector while Railways Minister D V Sadananda Gowda had mentioned opening up of cash-starved railways for foreign investment.