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India may allow increased FDI in defence production-Policy-Economy-News-The Economic Times
NEW DELHI: India looks all set to open its doors further to foreign direct investment in the sensitive defence production. The commerce and industry ministry has put out a discussion paper that suggests an increase in FDI in defence to 74% from 26% to encourage greater local manufacturing and technology transfer.
The proposal has received a mixed response with industry preferring an increase in the limit but only to 49% so that control remains in Indian hands.
We are for 49% FDI which will allow control of a company to remain in the hands of Indians, said Brigadier Khutub Hai, chief executive officer, Mahindra Defence Systems.
The commerce ministry has said that this is only a discussion paper and not its own view.
This is only a discussion paper to throw up ideas and to generate a public debate. Anything that my department will do will be in consolation with the ministry of defence and taking into account fully their sensitivity, said Anand Sharma, Minister of commerce and Industry
The paper also points out that the government can always reject any proposal as licencing requirements for the sector will continue to be in place. Leading industry chambers CII and FICCI had suggested FDI up to 49% allowing Indians to control the company.
Maj Gen L M Arora of Indian Defence Review feels that india needs to be more aggressive. If 74% is allowed, they will be encouraged to bring in the high-technology also.
The discussion paper also points out that raising the limit from 26% to 49% may not serve any purpose.
Established players in the defence industry should be encouraged to set up manufacturing facilities and integration of systems in India with FDI up to 74% under the government route, said the discussion paper unveiled by the Department of Industrial Policy and Promotion.
However, the paper does not also suggest local procurement obligation to make investments more attractive. Foreign manufacturers will have to, however, participate in the Request for Proposal called by defence ministry to technically qualify and also compete in the financial bids.
For future RFP a condition may be imposed that the successful bidder would have to set up the system integration facility in India with a certain minimum percentage of value addition in India. The successful bidder should be allowed to bring equity upto the proposed sectoral cap, it said.
However, experts say asking foreign firms to set up systems integration facility may not happen immediately. Allowing 74% FDI is a progressive step, but, getting someone to set up a system integration facility, which is a final assembly point, is unrealistic, said Dheeraj Mathur, India leader, aerospace and defence , PwC.
The discussion paper, however, has remained silent on foreign direct investment in dual-use technology. Dual-use technology that has both civilian and defence use faces hurdles in imports as well as in investments.
Mr Mathur said the government will need to streamline policies such as offset, exports to make the country into a defence manufacturing hub. He said there is no reason why dual-use tech, which has large civilian use suffer investment hurdles.
NEW DELHI: India looks all set to open its doors further to foreign direct investment in the sensitive defence production. The commerce and industry ministry has put out a discussion paper that suggests an increase in FDI in defence to 74% from 26% to encourage greater local manufacturing and technology transfer.
The proposal has received a mixed response with industry preferring an increase in the limit but only to 49% so that control remains in Indian hands.
We are for 49% FDI which will allow control of a company to remain in the hands of Indians, said Brigadier Khutub Hai, chief executive officer, Mahindra Defence Systems.
The commerce ministry has said that this is only a discussion paper and not its own view.
This is only a discussion paper to throw up ideas and to generate a public debate. Anything that my department will do will be in consolation with the ministry of defence and taking into account fully their sensitivity, said Anand Sharma, Minister of commerce and Industry
The paper also points out that the government can always reject any proposal as licencing requirements for the sector will continue to be in place. Leading industry chambers CII and FICCI had suggested FDI up to 49% allowing Indians to control the company.
Maj Gen L M Arora of Indian Defence Review feels that india needs to be more aggressive. If 74% is allowed, they will be encouraged to bring in the high-technology also.
The discussion paper also points out that raising the limit from 26% to 49% may not serve any purpose.
Established players in the defence industry should be encouraged to set up manufacturing facilities and integration of systems in India with FDI up to 74% under the government route, said the discussion paper unveiled by the Department of Industrial Policy and Promotion.
However, the paper does not also suggest local procurement obligation to make investments more attractive. Foreign manufacturers will have to, however, participate in the Request for Proposal called by defence ministry to technically qualify and also compete in the financial bids.
For future RFP a condition may be imposed that the successful bidder would have to set up the system integration facility in India with a certain minimum percentage of value addition in India. The successful bidder should be allowed to bring equity upto the proposed sectoral cap, it said.
However, experts say asking foreign firms to set up systems integration facility may not happen immediately. Allowing 74% FDI is a progressive step, but, getting someone to set up a system integration facility, which is a final assembly point, is unrealistic, said Dheeraj Mathur, India leader, aerospace and defence , PwC.
The discussion paper, however, has remained silent on foreign direct investment in dual-use technology. Dual-use technology that has both civilian and defence use faces hurdles in imports as well as in investments.
Mr Mathur said the government will need to streamline policies such as offset, exports to make the country into a defence manufacturing hub. He said there is no reason why dual-use tech, which has large civilian use suffer investment hurdles.
