Cabinet approves foreign investment hike in defence, railways

NEW DELHI Thu Aug 7, 2014 12:40am IST

Admiral Gorshkov, a Soviet-era aircraft carrier that was bought by India, is anchored at the Sevmash factory in the northern city of Severodvinsk July 2, 2009.  REUTERS/Alexander Zemlianichenko/Pool

Admiral Gorshkov, a Soviet-era aircraft carrier that was bought by India, is anchored at the Sevmash factory in the northern city of Severodvinsk July 2, 2009.

Credit: Reuters/Alexander Zemlianichenko/Pool

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NEW DELHI (Reuters) - The cabinet approved a plan on Wednesday to raise the amount of foreign direct investment allowed in its defence and railways industries, part of Prime Minister Narendra Modi's efforts to attract more foreign cash and revive the economy.

The government is to increase the foreign investment limit in the defence industry to 49 percent from 26 percent, a senior cabinet minister told Reuters following a cabinet meeting.

Limits will be lifted altogether on foreign investment in railway infrastructure, although foreigners will still be barred from investing in railway operations, the minister said, speaking on the condition of anonymity.

Cabinet approval for the plans was widely expected after Modi's two-month old government said it would ease foreign investment limits in its budget last month.

The government's efforts to push through such reforms and open up the economy have already come up against early resistance, however.

Over the past week, the government has twice sought to introduce legislation allowing more foreign investment in the insurance sector, but it has been blocked by the opposition.

India, the world's largest arms importer, wants to open up the domestic weapons industry to help boost domestic manufacturing and modernise its Soviet-era military.

The country's vast railways network has also suffered from years of low investment, turning a once-mighty system into a slow, badly-congested network. The railways spend 94 percent of revenues on operating costs, leaving next to nothing for investment.

(Reporting by Nigam Prusty; Writing by Tommy Wilkes)

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