49% FDI in defence is disappointing: Amber Dubey, KPMG in India

India will allow foreign direct investment in the defence sector to 49%, up from 26% now, while keeping management control in domestic hands, finance minister Arun Jaitley said in the Union budget on Thursday.

Jaitley said that India is the largest buyer of defence equipment and the move to increase FDI in the sector will help boost domestic capacity.

The move however came in for criticism from Amber Dubey, partner and India head of aerospace and defence at global consultancy KPMG, who felt that 49% FDI in defence is disappointing.

"It makes no difference from 26% FDI technically. 49% may create the same issues of sleeping partners and 'effective control' as we have seen in the case of airline sector. Airlines too are subject to a 49% FDI limit," he said.

Dubey said that this would mean more paperwork, more PILs and more power to lawyers and consultants and opined that this move will make India the bigger loser.

"We have just pushed away investments in defence manufacturing by another year. Round 1 to protectionist forces. Hope better judgement prevails and we have higher FDI, with adequate checks and balances, announced later this year", Dubey added.