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New Delhi: self-sufficiency from domestic sources. At the same time, the government currently maintains a ceiling of 26% on Foreign Direct Investment (FDI) in the defence industrial sector, with some exceptions permitted for project-specific joint ventures and for dual-use activities.”
Welcoming the recommendation that the Economic Survey had made, Scopes said, “raising this 26% ceiling would be an important enabler in bringing about the transformation. Achieving a higher level of self-sufficiency would bring evident benefits to India. It would give the defence customers (the armed and security Forces) access to a stronger and more innovative indigenous industry to meet their own particular requirements. It would enhance security of supply and as importantly in this age, strengthen India’s ability to support and upgrade systems through their whole life-cycle within India’s own industrial base.”
“Proposal to allow 49% FDI in defence, will permit greater inflow of money to the economy which is the need of the hour for the economy and will ensure indigenisation of India’s defence imports,” Ficci president Harsh Pati Singhania told FE.
In January this year, the UK based BAE Systems and Mahindra and Mahindra set up a JV with the Indian company holding 74 % stake in the new joint venture, while BAE Systems is to hold the remaining 26 %.
Their earlier application for 51:49 joint venture was rejected by the FIPB. While no specific reason was cited by FIPB, the proposal was rejected on “technical grounds” that the proposed JV was not consistent with FDI guidelines for defence industry.
The contribution from international defence majors in the form of both capital and technology has the potential to enhance the ability of private sector that in turn would contribute to India’s defence industrial capability. The present policy of FDI for defence sector does not allow this to happen.
Indian forces are also the world’s largest importer of defence equipment, with their hardware arm importing goods worth $6 billion. The defence sector spending is expected to increase from 2.8 % to 3 % of the gross domestic product (GDP), which could be utilised to finance additional capital outlays for modern equipment. The defence offset policy is expected to bring in $10-billion during the 11th Five-Year Plan period as every foreign firm involved in the defence deals is required to spend 30% of the value on offset goods or services purchased from Indian defence companies....
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