Despite objections raised by the defence ministry,the Foreign Investment Promotion Board (FIPB) has gone with the industry department?s view that non-defence foreign companies can also invest inthe defence sector up to the 26% sectoral FDI cap.
The Department of Industrial Policy and Promotion (DIPP) and the defence ministry had locked horns over the issue with the former saying that non-defence overseas companies can invest in an Indian JV within the 26% limit. The defence ministry has always held the view that such tie-ups strictly apply to companies which are in the defence sector.
The defence ministry?s stand is that non-defence companies can invest up to 5% within the overall 26% cap.
The division came to the fore at a recent FIPB meeting when the defence ministry objected to allow Canadian Imperial Bank?s subsidiary NCBG to invest in a 26:74 joint venture with Indian partners in defence component manufacturing. Though there is no mention of 5% FDI in defence sector from foreign non-defence companies in the country?s consolidated FDI policy, defence ministry stated that the ministry did not support the proposal in view of the internal stand of the ministry according to which ?an individual foreign entity not having expertise in the defence sector will not be allowed to invest more than 5% in Indian companies?. The FIPB, however, went along with the DIPP?s stand and approved the proposal. However, it remains to be seen how such proposals are treated in future.
Despite the 26% FDI cap, the defence sector has attracted top overseas defence OEMs (original equipment manufacturers) like the UK-based BAE, European consortium EADS, US-based Sikorsky and Lockheed Martin.
Last month, the DIPP had issued a discussion paper making a case for removing FDI cap below 49%.
The reason was that current regulations allow foreign companies to invest in downstream sectors through an Indian-owned holding company.
This way, such foreign companies can have investments in such downstream sectors up to 49%.
In such a scenario, it is felt that any cap below 49% becomes superfluous.
