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Govt moots 100% FDI in defence
26% cap to go, but with riders; will facilitate Indian manufacturing in foreign-made equipment
Ajay Banerjee
Tribune News Service

New Delhi, May 30
The newly elected BJP-led government today formally proposed up to 100 per cent foreign direct investment (FDI) in the defence manufacturing sector.

At present, there is a 26 per cent cap on FDI in defence. On a case-to-case basis, it can go up to 100 per cent but with strict riders. Demands have been made by leading US, Russian, UK and Israeli companies to lift the 26 per cent cap on the ground that it was hindering Indian manufacturing. The FDI in India’s defence sector has been very low — just Rs 24.36 crore ($ 4.94 million) has come in between April 2000 and April 2013.

Minister of State (independent charge) for Commerce Nirmala Sitharaman today okayed a proposal that was put forward by the Department of Industrial Policy and Promotion (DIPP). The matter will need the nod of the Narendra Modi-headed Cabinet Committee on Security (CCS), the top-most decision-making body on security matters. Besides Modi, Home Minister Rajnath Singh, Finance and Defence Minister Arun Jaitley and Foreign Minister Sushma Swaraj are members of the committee.

The DIPP has proposed three caps for the FDI in defence — 49 per cent, 75 per cent and 100 per cent. It has proposed allowing 49 per cent FDI in the case of no technology transfer and 75 per cent where there is technology transfer. The no-cap policy should be reserved strictly for the cases which bring in state-of-the-art technology, it has suggested.

However, entry through automatic route may still be barred on account of security and the proposal will have to be vetted by intelligence agencies. The previous Congress-led UPA government wanted a hike in the base cap of 26 per cent FDI but was stonewalled by the then Defence Minister AK Antony. An all-powerful but stoic Antony put his foot down when the Naresh Chandra Committee report in June 2013 suggested an increase in FDI limit in defence sector. The committee pointed out that it would attract foreign vendors to offer their latest technologies for manufacturing military hardware in the country. Parliamentary Standing Committee on Defence, in a report in August 2013, rejected Antony’s stand saying that even the DRDO favoured it. The report said: “The committee recommends enhancement in the FDI limits to attract foreign companies which would benefit Indian defence industry, provide jobs and save precious foreign exchange”.

A March 2014 report of the internationally acclaimed think-tank — Stockholm International Peace Research Institute — said India made the largest global arms imports between 2009 and 2013 and accounted for 14 per cent of all trade. This comprised about 70 per cent of the Indian imports. Congress leader Manish Tiwari said, “As things stand today, conceptually it is possible to have 100 per cent FDI in defence after appropriate filtering".

What 2013 report said

“The committee recommends enhancement in FDI limits to attract foreign companies which would benefit Indian defence industry, provide job opportunities and save foreign exchange”, said Parliamentary Standing Committee on Defence in Aug 2013

Three caps proposed

• The DIPP has proposed three FDI caps —49 per cent, 75 per cent and 100 per cent
• It has proposed 49 per cent FDI in the case of no technology transfer
• 75 per cent cap where there is technology transfer.
• The no-cap policy is for cases which bring in state-of-the-art technology
• At present, there is a 26 per cent cap in FDI which can go up to 100 per cent with strict riders