Mixed response to FDI push in defence sector

Written by Huma Siddiqui | New Delhi | Updated: Jul 18 2013, 05:51am hrs
The government's decision to allow FDI above 26% in defence production on a case-to-case basis in areas where state-of-the-art technology is involved has evoked a mixed response from potential global investors.

Some firms that FE spoke to called the move an eyewash as nothing much has changed, but others said it was still a positive development because it iterated the government's intent to ease FDI curbs. Indian firms such as L&T, Tatas, seen to be potential collaborators with FDI investors, refused to comment.

"The MoD has amply demonstrated that it cannot be blindly influenced by decisions taken by other ministries. However, the ministry now needs to explain its position on FDI clearly to prevent any confusion, said Deba R Mohanty, chairman and CEO, INDICIA Research & Advisory.

It is understood that commerce minister Anand Sharma raised the issue of increasing FDI cap in defence at Tuesday's meeting with the Prime Minister.

Sharma argued for FDI without ceiling in the sector, subject to scrutiny on a case-to-case basis by the cabinet committee on security. However, defence minister Antony made it clear that ministry had no intention for allowing FDI higher than 49% even if meant such decision to be taken by the CCS in very specific cases.

"Having ourselves sought a 49% shareholding previously, the conditions for the case-by-case relaxation will be a matter of keen interest for international original equipment manufacturers (OEMs) such as ourselves. We will continue to advocate that a bold move to abolish the cap altogether, alongside appropriate security regimes, would substantially increase the attractiveness of the Indian market as a place to transfer technology and develop know-how," Dean McCumiskey, MD & chief executive, India, BAE Systems, told FE.

According to the spokesperson of the US-based Boeing Company, "The announcement on FDI in defence reflects positive movement and we welcome that. However, we await the details to understand the meaningful changes this would bring to the sector."

Puneet Kaura, executive director of Samtel Avionics said, ""FDI limit increase on case-to-case basis to 49% was existing even before this announcement, so nothing much has changed."

The defence sector can give a major boost to R&D, manufacturing, and MRO, creating a multiplier effect on economy and jobs in India. The opening up of FDI, therefore, is a positive step towards enabling Indias own defence industry to become self-sufficient, ultimately helping make the country safer and more secure," said Pritam Bhavnani, president, Honeywell Aerospace, India.

Industry body FICCI said, "What India needs are joint ventures that enhance its strategic capabilities like the Indo-Russian Brahmos missile programme, which has catapulted India to the group of nations with supersonic cruise missile capabilities, with IPRs residing within the country giving it export potential."

"It is too preliminary to comment. We need to understand what is included in high technology as it is too subjective a term," said Luv Chhabra, director, corporate, affairs, Punj Lloyd.