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India's Modi eases FDI curbs to regain momentum

New Delhi - India’s Prime Minister Narendra Modi eased restrictions on foreign direct investment in 15 industries in a bid to revitalise economic reform momentum and halt a stock selloff that threatens to send the local currency to a record low.

Foreigners can now own 100% in cable and direct-to- home TV operators, duty free shops and limited liability partnerships, the government said in a statement on Tuesday.

Overseas investors can buy a 49% stake in defence companies and regional airlines without government approval, while those that still need permissions can get them through a simpler process.

Modi, who suffered a political setback over the weekend after his Bharatiya Janata Party lost elections in the eastern state of Bihar, is seeking to boost investor confidence by opening up India’s economy further to foreign investors.

The poll defeat has raised concern Modi’s opponents will block his reform measures in parliament, pushing the benchmark stock index to the lowest in seven weeks and the rupee closer to an all-time low.

“After the Bihar election debacle, the government seems to have got on the front foot,” said Paras Bothra, a Mumbai-based vice president of equity research at Ashika Stock Broking. “These executive reforms, which don’t need parliament approval, are more important as they will boost investor confidence.”

Rupee gains

The rupee appreciated as much as 0.2% after the announcement, following a 1% drop against the dollar on Monday, the biggest loss since August 24.

In further measures, portfolio investors can buy up to 74% in local private banks, with full fungibility, while caps on palm, coffee and rubber plantations have been phased out.

Single brand retailers can seek relaxation in sourcing rules, provided they sell high technology products, a move that could potentially pave the way for Apple to set up its own stores in India. At present, retailers selling single brand products have to source 30% of their inputs locally.

“This shows the government is strong and the election results don’t really matter from the point of view of economic policies,” said Madan Sabnavis, chief economist at Mumbai-based Credit Analysis and Research. The move augurs well for the rupee, he said.

Creating jobs

After taking national power last year with the biggest mandate in three years, Modi has wrestled with opposition parties that have blocked a national sales tax and a bill to make it easier to acquire land for factories.

Foreign direct investment into India has risen 30% in the April-June period to $9.5bn from a year ago, according to data provided by the commerce ministry. It touched a record $35bn in the 12 months through March 2012.

“Jobs will be created with increased investment inflows and these measures help boost growth,” Finance Minister Arun Jaitley told reporters in New Delhi. “We have liberalized the norms to make it more attractive for foreign investors.”

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