Indian Finance Minister Jaitley announced he would raise ceilings on foreign investment in the defence and insurance sectors, but still bar non-residents from taking majority control in projects to supply the world’s largest arms buyer.
Limits on foreign investment in defence and insurance ventures will go up to 49 percent from 26 percent – still less than sought by foreign contractors to justify sharing technology when they locate operations in India.
In another signature initiative, the government will launch a tax reform this year to unify India’s 29 federal states into a common market, a measure that would boost revenue while making it easier to do business.
Investors have piled into Indian stocks on hopes that Modi’s leadership and mandate would break a logjam thwarting a host of reforms during the 10-year tenure of his predecessor Manmohan Singh, whose coalition government became increasingly divided.
While the concrete measures announced by Jaitley fell short of the most bullish expectations, Indian stocks and bonds finished a volatile day stronger, thanks to his commitment to fiscal probity.
“These measures are very progressive and good for the bond and equity markets,” said Murthy Nagarajan, head of fixed income at Quantum AMC in Mumbai. “It would lead to a reduction of inflation in the coming years due to a lower fiscal deficit.”
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