Indian cabinet approves foreign investment hike in defense, railways

NEW DELHI Wed Aug 6, 2014 2:56pm EDT

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NEW DELHI (Reuters) - India's cabinet approved a plan on Wednesday to raise the amount of foreign direct investment allowed in its defense 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 defense 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 modernize 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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