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: The election results have made markets and industry hungry for more reforms. The wish list is large and includes a variety of policies, including actions on foreign direct investment (FDI).

The last two years have seen sharp increase in inward FDI into India. The Reserve Bank of India (RBI) estimates total FDI inflows for 2007-08 and 2008-09 at $34.36 billion and $33.61 billion respectively. Since 2006-07, annual FDI flows into India have been more than $20 billion. The period 2006-07 to 2008-09 has seen robust growth in FDI inflows compared to an average inflow of $5.6 billion during 2000-01 to 2005-06.

There is a feeling among many that India can attract more FDI if it introduces more liberal policies. What exactly are these policies? Is there a case for increasing FDI caps in certain sectors? Or should there be procedural simplifications?

Almost the whole of India’s manufacturing is open to 100% FDI under the automatic route. A handful of industries continue to attract licensing provisions under the Industrial Development (and Regulation) (IDR) Act of 1951. These include alcohols, cigarettes, defence production, industrial explosives and hazardous chemicals. FDI is allowed up to 100 per cent in all these industries except defense production where it is capped at 26%. Some may argue for a review of licensing requirements under IDR 1951. However, given the sensitive nature of the licensed industries, withdrawal of licensing requirements may not be feasible.

The situation is a little different for services. The scope of FDI is limited in services compared to manufacturing. FDI is prohibited in a few services. These include retail trading (except single brand), lottery business and gambling. In the permitted services, foreign equity is pegged below 50% in several.

Aviation services are a key segment in this regard. FDI is permitted only up to 49% in scheduled air transport services or domestic passenger airlines. Broadcasting services also have similar restrictions. Uplinking of non-news television channels is the only broadcasting service permitted to have 100% FDI after vetting by the Foreign Investment Promotion Board (FIPB). Majority foreign equity is not permitted in cable television networks and direct-to-home (DTH) operations.