Making a strong case for increasing the foreign direct investment (FDI) limit in defence production in order to facilitate transfer of state of art proprietary technologies, commerce and industry minister Anand Sharma has said that the current FDI limit of 26% is ?not enough?. In a letter sent to the Prime Minister, Sharma said that both Britain and France have expressed strong desire to invest in defence manufacturing in India.
In a communication send to the office of the Prime Minister, Sharma said that because of the 26% FDI cap, India could manage to attract FDI of only around $4.12 billion in defence manufacturing in the last decade.
Sharma said that the Department of Industrial Policy and Promotion (DIPP) had already floated a discussion paper suggesting raising the FDI cap to 74%. The commerce minister said in case there is reluctance to enhance cap to 74%, the government can look at a ?calibrated approach? by first enhancing the FDI cap to 49%. ?For all such cases, Secretary, Defence Production could be co-opted as Member of FIPB. MEA could prepare a negative list of countries from time to time, to which exports of defence equipment manufactured in India would not be allowed,? Sharma said.
Sharma cited the example of the US and European Union that allow 100% FDI in defence manufacturing subject to strict verification and clearance procedures and export controls. Sharma said the defence forces will not be obligated to procure from domestic manufacturers and could always continue to do so through a transparent bidding process in which these companies could also participate.
According to the commerce minister, while increasing the current cap, India can always incorporate conditions for minimum value addition that can be decided by the foreign investment promotion board (FIPB). ?For those sectors where adequate capacities exist in defence PSUs, FIPB could well take a view to disallow foreign investment. The Government could also retain the right to impose appropriate internal security conditions including surveillance systems or controlling the production or despatch for these facilities and deployment of defence personnel,? Sharma said.
?Currently, the domestic industry is allowed to fully participate in defence manufacture, but very limited orders are placed on them. Understandably, in absence of their being able to source high-end technologies, it is unrealistic to expect them to make state-of-the art equipment,? he said.
According to the commerce minister, encouraging foreign defence manufacturers to establish manufacturing bases in India will provide a platform for transfer of high end technology. ?This will also catalyse the growth of domestic manufacturing,? he said.