FM Sitharaman gives Defence a boost: Higher FDI, Make in India push good, say experts

By: |
May 16, 2020 7:54 PM

The government has been pushing for fast-tracking several critical equipment and weapons that are needed for operational reasons as well as part of the modernization of the armed forces.


India, Defence, Ordnance Factories, Foreign Direct Investment, FDI, Finance minister, Nirmala Sitharaman, FDI cap, Defence Industrial Corridors, Tamil Nadu, Uttar Pradesh, global pandemic, COVID-19, domestic defence production, Boeing, Lockheed Martin, Airbus, aerospace, Skill India, Make in India, Rajnath Singh, DPSU, OFB, Defence Research and Development Organisation, DRDO, Indian Armed forces, fighter jets, UAV, guns, spare parts, Ordnance Factors, defence procurement, Amit Cowshish, Ministry of Defence, defence productionUnion Finance Minister Nirmala Sitharaman addresses the fourth part of her press conference on the economic stimulus package announced by Prime Minister Narendra Modi, at the National Media Centre, in New Delhi, Saturday, May 16, 2020.(Courtesy: PTI Photo)

Corporatisation of the Ordnance Factories and raising of the Foreign Direct Investment (FDI) to 74 per cent through the automatic route are two big takeaways from today’s announcement on the steps government intends to take to give a fillip to defence production.

The limit has gone up from the existing 49 per cent to 74 per cent through automatic route.

“This will however be subject to security clearance,” said Finance minister Nirmala Sitharaman at a press conference in New Delhi.

The FDI cap has witnessed a gradual increase from 26 per cent to 49 per cent and now to 74 per cent. Several foreign companies who have been planning to invest in the Defence Industrial Corridors in Tamil Nadu and in Uttar Pradesh have been seeking a raise in the FDI cap and the government’s announcement comes just in time to help boost the defence sector.

“Such a step is going to be good not only for the industry, the Indian economy which has got affected by the global pandemic of COVID-19 and have a significant impact on increasing the level of domestic defence production,” opine experts.

Several countries have been urging the government to increase the FDI cap in defence production in India, as a lot of big global manufactures including Boeing, Lockheed Martin, Airbus, etc have been setting up their small bases here as well creating ecosystems that will help in India’s aerospace and defence sectors.

Though these big global names have been helping in government’s ‘Skill India’, ‘Make in India’ initiatives they wanted more incentives to expand their presence here.

The government has been cautiously hiking the FDI cap as they don’t want to compromise the security of the country.

Defence Minister Rajnath Singh has been urging all the DPSUs, OFB, Defence Research and Development Organisation (DRDO) to help in more indigenization and self-reliance.

The Indian Armed forces have been relying heavily on equipment and the latest technologies and the state of the weaponry from global vendors. These include many big-ticket items like fighter jets, UAVs, guns, spare parts, etc.

The government is also planning to help in boosting production and manufacturing of the Ordnance Factories which are spread across the countries. These OFs have the production facilities as well as skilled people who can be a great asset and help in ‘Make in India’ initiative.

The DPSUs, as well as DRDO which has lots of projects which have been designed in-house but yet to come out for production, could also be given a push to ensure that the imports are cut down drastically.

The government has been pushing for fast-tracking several critical equipment and weapons that are needed for operational reasons as well as part of the modernization of the armed forces.

On Saturday, the government has once again called for the time-bound defence procurement process and faster decision making.

And for this, a project management unit is going to be set up which will help in supporting contract management and this will be combined with a realistic setting of general staff qualitative requirements of weapons/platforms.

Soon the government is planning to announce more amendments in the existing DPP-16, which is likely to talk about overhauling the trials and testing procedures too.

Says Amit Cowshish, former Financial Advisor (Acquisition), Ministry of Defence, “The change in the FDI limit meets one of the long-standing demands of the foreign companies, it needs to be harmonised with the preference for procurement of indigenous equipment.”

“Separate capital budget for domestic procurement will be a big thing if it is by way of additional allocation. One will have to wait for the details to have a better idea of how well these steps are likely to get implemented and how soon they will start showing results,” adds Cowshish.

Other steps announced by the FM include notification – and regular updating – of the list of equipment and platforms which can be procured only from the Indian companies, indigenisation of spares and components, realistic formulation of qualitative requirements and formation of project management units.

“These are not new objectives and all these are anyway being pursued even at present in one form or another. It will make a difference, though, if following the FM’s the announcement, MoD adopts a more effective result-oriented approach to implement these measures” opines the former financial advisor (acquisition)in the Ministry of Defence.

“Overall, the package bodes well for defence production, even if it provides little immediate relief to, or gains, for the industry. In the long run, it might,” he concludes.

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