NEW DELHI (AFP) – A group of Indian cabinet ministers late on Tuesday cleared plans to remove the foreign investment cap in telecoms and relax overseas ownership rules in a host of sectors in a new economic reforms push.
The moves are aimed wooing investors and kickstarting the struggling economy before the scandal-tainted Congress government faces voters in general elections due by May 2014.
"We expect more foreign direct investment to flow in with these decisions," commerce minister Anand Sharma told an evening news conference.
The government is seeking to rebuild confidence in the economy which grew at its slowest pace in a decade at five percent and boost the ailing rupee which has hit a string of lifetime lows in recent weeks.
Among the steps, the ministers at a meeting chaired by Congress Premier Manmohan Singh approved raising the ceiling on foreign direct investment (FDI) in telecommunications to 100 percent from 74 percent.
They also decided to abolish the need for government approval for certain levels of foreign investment in single-brand retail and petroleum refining. In insurance, it approved raising the FDI cap from 26 percent to 49 percent.
But in the contentious area of defence, the FDI cap will remain at 26 percent with proposals beyond that considered on a case-by-case basis.
The ministers' decisions will still require the approval of the full cabinet -- likely to come at a meeting next week -- and the move to hike the insurance cap requires parliamentary clearance, Sharma said.
The announcement came after Finance Minister P. Chidambaram visited the United States for a second time in three months last week to reassure foreign companies that India remained a hospitable place to invest.
"We welcome the move and it indicates that reforms are underway," said Federation of Chambers of Commerce and Industry president Naina Lal Kidwai.
FDI in India -- seen as vital to improving its shabby infrastructure and boost manufacturing to employ its burgeoning youth population plunged to $22.4 billion last year from 36.5 the previous year, government figures show.
Underscoring foreign investor unhappiness with India, South Korean steel giant Posco scrapped a $5.3-billion deal to build a steel plant in the southern state of Karnataka due to land acquisition delays and local opposition.
Economists say India needs foreign investment to spur growth and also to close its wide current account deficit -- the broadest measure of international trade -- that has alarmed global credit ratings agencies.
To improve India's investment attractiveness, economists say the government must reduce the country's burdensome red tape, speed up slow project approvals and lessen widespread corruption.
The government has been dogged by a string of graft scandals during its second term in office, which has derailed many of its efforts to push through promised pro-market reforms.
Last year, the government opened up the supermarket, civil aviation and broadcasting sectors to wider foreign investment in a burst of reforms after being accused of policy paralysis.