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.

India continues to have restrictive regulations for FDI in financial services. FDI is allowed up to 74% in private banks. Insurance, however, can get FDI only up to 26%. Minority foreign equity up to 49% is permitted in asset reconstruction companies (ARCs), stock exchanges, depositories, clearing corporations and commodity exchanges. Barring ARCs, in all the rest, the aggregate foreign investment ceiling (i.e. FDI+FII) is set at 49% with FDI space capped at 26%. In telecommunication services?both basic and cellular?despite allowing FDI up to 74%, only 49% is allowed under automatic route with the rest requiring sanction of FIPB.

There are no doubts that India?s future regulatory reforms involving FDI need to focus extensively on services. Many business services have almost closed FDI regimes. The Limited Liability Partnership Act of 2008 has enabled foreign law firms to offer consultancy services in India. But they still cannot practice law. Similarly, foreign accountancy firms cannot carry out audits in India. These are segments where the FDI regulations continue to be inward-looking. At the same time, domestic policies are often hindrances to entry of FDI. Education is a key example. Restrictions on service providers to be necessarily of a ?non-profit? nature constrain the scope of FDI in education. Unless such restrictions are removed, there is not much chance of attracting renowned global brands in education.

Which of the above need to be addressed urgently? Insurance desperately needs more foreign funds. The large demand for both life and non-life products requires a bigger group of service providers. Longer life cycles and changes in attitude to savings with a greater inclination towards equity market-based products require availability of sophisticated insurance products. Foreign firms with deep pockets and varied offerings are best placed to serve these needs of the Indian market.

High crude oil prices followed by economic deceleration have dented bottom lines of India?s low-cost air passenger carriers. Increasing FDI ceiling in scheduled air transport services can inject fresh blood in India?s rather beleaguered budget airline industry. Indeed, Indian carriers will be eagerly looking forward to prospective collaborations with willing foreign partners for achieving higher financial stability.

Insurance and civil aviation are sectors where significant market potential remains untapped. The Left proved to be a stumbling block in realising the potential. Absence of the Left is expected to make matters right. One hopes that early actions in these pending areas will vindicate the widely held view that economic reforms in India move in the right direction without the Left.

?The author is a visiting research fellow at the Institute of South Asian Studies in the National University of Singapore. These are his personal views