The government has allowed 100% FDI in sectors ranging from power to greenfield airports and from mining to agriculture. But in some key sectors like defence, insurance, banking, retail and media, it has been cautious to allow FDI. One such sector is retail in which the FDI cap for single-brand stores is 51% and no FDI is allowed in multi-brand retail. The reasoning is that the retail sector in India is largely unorganised and will not be able to withstand the onslaught of the Walmarts and Carrefours of the world. The fact that 34 million Indians are employed in this sector adds to the political sensitivity in handling this sector. At the same time, the government has allowed Indian majors to enter the organised retail market and consolidate in the last few years.

But it is high-time that multi-brand retail is made open to FDI. This can be done in phases first by raising the FDI cap in single-brand retail to 100% and then by allowing FDI in multi-brand retail. The government can lay down a condition that a specific percentage of the investment should be used for creating and upgrading infrastructure, especially in rural areas.

Defence is another key sector in which the current FDI cap is 26%. This should be progressively raised to 51%, 74% and finally 100%. At the same time, the government should insist on technology transfer from foreign companies and encourage the formation of joint ventures with Indian firms. The case for the foreign players is boosted by the nascent stage in which Indian defence industry is now.

One key sector to liberalise is insurance where the present FDI cap is 26%. The recent global meltdown, aided by the misadventures of some US insurance companies, has not really helped the government?s case. This has caused a prudent approach. In due course of time, when FDI cap in insurance is relaxed, it should be done with a strong regulatory framework. The pragmatic approach is reflected in the RBI proposal to lower the FDI in private sector banks from 74% to below 50%.

In a larger perspective, the approach of cautious liberalisation that the government is following will help it in the long run. More so, in the coalition era.

The author is MBA (international business) student of IIFT, Kolkata. Email: rohit_kd12@iift.ac.in