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October 22, 2016
  • India may allow 100 per cent FDI in Defence Sector
  • May 30 2014 10:26PM
  • by BDK Bureau
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  • Indian Minister of State for Commerce
    Nirmala Sitharaman 

    New Delhi: India's just-elected Bharatiya Janata Party-led Government has formally proposed to have up to 100 per cent Foreign Direct Investment (FDI) in Defence manufacturing sector. At present there is a 26 per cent cap in FDI in defence in India and on a case-to-case basis it can go up to 100 per cent but with strict riders.

    Indian Minister of State for Commerce, Nirmala Sitharaman on May 30 okayed a proposal that was put forward by the Department of Industrial Policy and Promotion (DIPP). The matter will need a nod from Narendra Modi headed Cabinet Committee on Security (CCS), the top-most decision making body on security matters.  Besides Modi, Finance and Defence Minister Arun Jaitley, Home Minister Rajnath Singh,  and Foreign Minister Sushma Swaraj are in the CCS.

    The DIPP, which functions under the Commerce Ministry  had proposed three different slabs for FDI— 49 per cent, 75 per cent and 100 per cent — all linked to incentivise technology transfer. Sitharaman has agreed to these. In case of allowing 49 per cent FDI there will be no technology transfer and 74 per cent where there is a technology transfer. The no-cap policy should be reserved strictly for cases which bring in state-of-the-art technology, it has suggested. However, entry though the automatic route may still remain barred on account of security and proposals will have to be vetted by intelligence agencies. 

    Demands have been made by US, Russian, UK and Israeli companies to lift the 26 per cent cap. FDI into India's defence sector has been very low — just Rs 24.36 crore (US $4.94 million) has come in between April 2000 and April 2013.  US Deputy Secretary of Defence Ashton Carter, who along with the Indian National Securty Advisor (NSA) co-chairs the US-India Defence Technology Trade Inititaive (DTTI), has been open is seeking a more liberal FDI policy.   Among those who could benefit include US majors Lockheed Martin, Boeing, Honeywell, Textron, General Dynamcis, Raytheon and Northrop Grumman  alongwith Europen companies BAE systems, Airbus, MBDA, DCNS, Navantia,  Atlas electroniks besides Israelis like IMI, IAI and Rafael. 

    In March 2014, the Stockholm International Peace Research Institute (SIPRI) said,  India was the largest global arms importer between the years 2009 and 2013. This was 14 per cent of all global trade.

    Two divergent opinion on FDI

    A K Antony, who was defence minister in the Congress-led UPA alliance and one of the longest serving defence ministers ( Oct 2006 to May 2014),   strongly opposed the move to raise FDI cap in the defence sector to 49 per cent and said the current limit of 26 per cent was ‘good enough’.  In Augsut 2013 Antony had  repsonded to UPA's Commerce Minister Anand Sharma saying: “The country cannot afford to be dependent on foreign companies and be vulnerable to policies of their countries of origin, in the field of defence on a long-term basis".

     “Allowing foreign companies to set up assembly units here would be a retrograde step as it would stymie the growth of indigenous design and development, and our dependence on foreign countries and original equipment manufacturers for modern weapons would get perpetuated,” Antony had argued in his letter.

    On the other hand, there are views at variance to Antony. The  Naresh Chandra Committee , set up by Prime Minister Manmohan, prepared a report in August 2012 saying "there is every need to support higher FDI so that the latest technologies already developed by foreign entities and owned by them find their way into manufacturing defence items within India".

    An year later, the  Parliamentary Standing Committee on Defence in a report in August 2013 also favoured a hike and added: "The Committee recommends enhancement in FDI limits to attract foreign companies which would benefit Indian defence industry,  provide employment opportunities and save precious foreign exchange”.

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