India's efforts to attract more overseas capital are expected to play a significant role in reducing levels of poverty in the country, as they boost employment opportunities.
The cabinet on Thursday relaxed the rules for foreign direct investment (FDI) in multi-brand retail in India and approved higher caps on FDI in the telecoms, defence and insurance sectors.
"The government of India is making determined efforts to attract foreign fund flows to bridge the deficit," said Raju Bhinge,the chief executive of the Tata Strategic Management Group. "These flows take a variety of forms: external commercial borrowings by Indian companies; trade credit; investment in India's debt and equity markets; and foreign direct investment.
"While all these flows are necessary to sustain India's economic growth rate and balance foreign exchange flows, the FDI component directly creates employment and business assets. FDI in sectors such as [agriculture] processing, modern retail and labour-intensive manufacturing has the greatest impact on jobs growth and poverty reduction."
India on Thursday also removed the cap on FDI in the telecoms sector from 74 per cent to allow 100 per cent investment.
It has allowed more than 26 per cent FDI in the defence sector and has permitted 49 per cent FDI in nine sectors under the automatic route, meaning it does not need the prior approval of the government or the central bank, including state-run oil refineries, stock exchanges, single-brand retail and power exchanges.
India's government last September announced changes to help to boost foreign investment, including opening up the multi-brand retail industry to investment of up to 51 per cent from foreign supermarket chains and allowing overseas carriers to invest up to 49 per cent in Indian airlines.
"Foreign investment generates jobs and growth and to that extent it would help," said Kamal Sen, the president and chief executive of Cogitaas, a consultancy.