Mumbai: India allowed foreign companies to own as much as 100% equity in the local defence sector through the government approval route in cases where it is likely to result in access to modern technology, the Prime Minister’s Office said in a statement.

The current foreign direct investment (FDI) regime permits foreign companies to own 49% in Indian units through the automatic approval route.

“Foreign investment beyond 49% has now been permitted through government approval route, in cases resulting in access to modern technology in the country or for other reasons to be recorded. The condition of access to ‘state-of-art’ technology in the country has been done away with," the statement said.

FDI limit for defence sector has also been made applicable to manufacturing of small arms and ammunitions covered under Arms Act 1959, the statement said.

With 60% of India’s defence requirements met through imports, local defence production is at the heart of the Make In India programme, Prime Minister Narendra Modi said in 2015, a year after he launched his government’s flagship campaign.

The defence budget estimate for 2016-17 is 3.4 trillion, about 10% more than the previous year’s budget estimate, which is broadly consistent with past increases.

“It is a significant step forward as it provides global OEMs (original equipment manufacturers) strong incentive to establish substantial local manufacturing in India. We expect this to result in greater ease of transfer of higher value and complexity characterised system level work as it will help to allay some fears on technology transfer and ownership," said Rahul Gangal, partner at consulting firm Roland Berger Strategy Consultants.

“India can expect larger aerospace defence competence and capability building through a larger number of wholly owned subsidiaries. This will have a downstream uptick of work-package flow to the wider Indian-owned manufacturing value chain," Gangal said.

Vimal Bhandari, managing director and chief executive officer of IndoStar Capital Finance Ltd, said the easing of FDI rules will facilitate entry of global players.

“This, in turn, should help in accelerating pace of investment and enhancing business opportunities," Bhandari added.

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