NEW DELHI, 13 July 2004 — Finance Minister P. Chidambaram, under fire from his government’s leftist allies, yesterday defended his decision to hike foreign direct investment (FDI) limits in the telecoms, insurance and aviation sectors.
Chidambaram also told business and industry leaders the budget he had unveiled Thursday was “pro-reform” while adding that he would offer no “apologies” for earmarking 50 percent of resources for agriculture.
Addressing the Federation of Indian Chambers of Commerce and Industry, he said the increase in foreign ownership limits would have no practical result since it was only formalizing the current situation or would not result in a change in management control in any case.
In his budget, Chidambaram raised foreign investment limits to 74 percent from 49 percent in telecommunications, to 49 percent from 40 percent in aviation and to 49 percent from 26 percent in insurance.
“Telecom has 74 percent (foreign investment) already ... only it is in a non-transparent manner,” he said yesterday, adding: “All that we are doing is making transparent what is non-transparent.
“If you see the details of the holding company it is a maze of lines that reads like the succession lines of a Hindu undivided family,” he said.
As for raising the cap in aviation from 40 to 49 percent, Chidambaram pointed out that recently the government has increased the foreign equity stake in airports also from 40 to 49 percent.
“If airports can have 49 percent, why not aviation? Between 40 and 49 what is the difference?” he asked.
“It does not matter whether you raise from 40 to 49,” he said, adding, “There is no change in control, there is no change in management and effective structure.”
The minister’s comments follow stinging criticism from the Communists who are lending key outside support to the new Congress-led coalition government.
On Sunday, the Communist Party of India (Marxist) said it would keep up pressure on Chidambaram and Prime Minister Manmohan Singh until they rolled back the increased foreign investment limits.
Chidambaram yesterday urged Indian industry and his critics not to oppose his proposals on ideological grounds but to examine them from a financial point of view.
He urged support from Indian industry for his budget, saying its thrust was to continue reform, “deepen it, strengthen it.”
Incentives for the farm sector were also needed, he added.
“There is deep anguish in rural India, there is deep suffering in rural India. (Farmers) are not statistics ... We have an obligation to address their concerns,” he said. The message was of a “stronger, faster pace of reforms but with a deep and abiding concern for the bulk of the people of India,” he said.
Meanwhile, share prices closed flat yesterday, with uncertainty over whether the government will push through a new tax on stock market turnover dampening sentiment, dealers said. The Bombay Stock Exchange’s 30-share Sensex index closed 0.94 points or 0.02 percent lower at 4,944.54 points.
Local operators and small traders “kept out of the (market) as a kind of protest against the tax. Only foreign and domestic institutional investors picked up select stocks,” said Hiren Shah, senior dealer with KJMC Capital Markets.
