The decisions taken at the Cabinet meeting headed by Prime Minister Narendra Modi here came barely two weeks after the one to raise the cap of FDI in insurance sector from 26 percent to 49 percent.
FDI ceiling in the sensitive defence sector has been hiked to 49 percent from current 26 percent, with the condition that of the control in joint venture manufacturing defence equipment will remain Indian hands.
The move is aimed at boosting domestic industry of a country which imports up to 70 percent of its military hardware.
The proposal had been pending for several years as it was first mooted by the Commerce Ministry during the previos UPA government. However, the then Defence Minister A K Antony had blocked it, citing national security concerns.
The NDA government has been arguing that the FDI limit needs to be hiked in defence to help expand the domestic industrial base in the sector.
The Cabinet also approved a proposal to open up cash-strapped railways to foreign investment by allowing 100 percent FDI in areas such as high-speed train systems, suburban corridors and dedicated freight line projects implemented in PPP mode.
The FDI liberalisation in the sector would help in modernisation and expansion of the railway projects. However, FDI will not be allowed in train operations and safety.
According to estimates, the sector is facing a cash crunch of around Rs 29,000 crore and allowing of FDI will help mop up resources.
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