New Delhi: The department of industrial policy and promotion (DIPP) has proposed to raise foreign direct investment (FDI) in private defence manufacturing from 26% to 74%, or even 100%.
Opening up the sector will bring global technological advancements to India and boost the country’s self-reliance. It will also help save foreign exchange reserves, a sizeable portion of which is spent in importing defence equipment, DIPP said in a discussion paper published on its website on Monday.
The defence ministry does not favour more than 50% FDI in the sector.
Due to its opposition, the Foreign Investment Promotion Board (FIPB) recently rejected engineering firm Larsen and Toubro Ltd’s proposal to set up a joint venture for defence manufacturing with Europe’s Aeronautic Defence and Space Co. NV.
The DIPP paper suggests several safeguards in tune with the sensitive nature of the sector. It proposes that the government ask investors to participate in a bidding process. Defence manufacturing already requires licensing, and companies with suspect backgrounds could be refused.
Successful bidders could also be asked to set up system integration facilities with a prescribed minimum percentage of value addition from India, DIPP said.
The discussion paper is part of a series of six concept papers the department has promised to bring out, seeking views on changing the FDI regime in sectors such as defence, multi-brand retail, agriculture and finance, among others.
It has invited views on the defence paper by 31 July.
“This is a bold move by DIPP,” said Dhiraj Mathur, India leader for aerospace and defence, PricewaterhouseCoopers. “I agree that if we are interested in encouraging manufacturing and technology transfer in (the) defence sector, we need to increase the foreign investment limit.”
India imports nearly 70% of its defence requirements. Ordnance factories and public sector units provide the rest.
The country’s defence budget has grown 13.4% since 2006-07 to touch Rs1.5 trillion in 2010-11.