The government is considering to further relax foreign direct investment norms in the defence sector with a view to attract more overseas inflows. The issue was discussed in a meeting convened by the department of defence production. “The meeting was attended by industry chambers including CII and FICCI. The ministry asked the stakeholders to suggest what more needs to be done in the FDI policy to attract foreign investors,” sources said. Currently FDI up to 49 per cent is permitted in the sector through automatic route and beyond that up to 100 per cent via government nod is permitted.
Industry experts have stated that foreign investors seek assured orders before setting up manufacturing unit in any country. In India, government is the only procurer of defence equipment. Besides, export of defence products from India is also very regulated. In 2016, the government relaxed FDI norms in several sectors including defence. India imports 70 per cent of its military hardware from different countries. As per the policy, foreign investment up to 49 per cent has been permitted in the defence sector through automatic route, and beyond that limit through government route on case to case basis, wherever it is likely to result in access to modern and state-of-art technology.
Last month government cleared ‘strategic partnership’ policy to create a vibrant defence manufacturing ecosystem in the country through involvement of both the major Indian corporates as well as the MSME sector. Under the policy, select private firms will be roped in to build military platforms like submarines and fighter jets in India in partnership with foreign entities. During April 2000 and March this year, defence sector has attracted FDI worth only USD 5.12 million (Rs 25.49 crore).