Dipp favours raising FDI cap in defence
The government is planning to raise FDI ceiling in defence production through the automatic route to 49% from the current limit of 26%.
By ET Bureau |
NEW DELHI: This will enable global defence majors to set up ventures in India without having to wait for government clearances in cases where the foreign investment component goes beyond 26%. The move could attract top international defence suppliers like Lockheed Martin and Bombardier to set up joint ventures here.
The department of industrial policy and promotion (DIPP) is of the view that an FDI hike would attract more investment in the sector, which has hardy seen any major investment since it was opened up in 2001. "The current ceiling of 26% is holding back foreign players from investing in India. This ceiling needs to be hiked to 49% as it would help procurement of latest technologies," a DIPP source said.
According to sources, the defence ministry wants FDI hike in phases so that Indian players in the sector equip themselves with latest technology to take on the competition from international players in long run. Defence minister A K Antony is of the view that allowing more FDI in defence sector would enable public and private sectors to play a greater role in modernising Indian armed forces.
The increase in FDI would be subject to guidelines for licensing production of arms & ammunitions under Press Note 2 of 2002. There would be a three-year lock-in period for transfer of equity from one foreign investor to another foreign investor (including NRIs & OCBs with 60% or more NRI stake) and such transfer would be subject to prior approval of the FIPB.
The government has, however, been relaxing the cap on case-to-case basis to enable transfer of technology and manufacture of world-class equipment. For instance, it favoured the recent proposal of increasing the cap to facilitate co-development of multi-role transport aircraft by Hindustan Aeronautics in cooperation with Russian firm Rosoboronexport. The Russian firm wanted at least 50% stake in the joint venture, but the current FDI ceiling came in the way of such a tie-up.
Mahindra Defence Systems and BAE Systems have also applied to the FIPB to set up a joint venture, in which BAE would hold 49% stake. The government���s move to allow 49% FDI would rule out the need to approach the Cabinet in every case. Of late, countries such as the US and the UK have intensified demands to increase FDI cap in defence production.
The government has, however, been very reluctant in allowing foreign companies to take more than 26% in any JV for defence production. Aircraft manufacturers such as Boeing Company, Bombardier and EADS have recently shown interest to set up their production facilities in the country in partnership with Indian firms.
The department of industrial policy and promotion (DIPP) is of the view that an FDI hike would attract more investment in the sector, which has hardy seen any major investment since it was opened up in 2001. "The current ceiling of 26% is holding back foreign players from investing in India. This ceiling needs to be hiked to 49% as it would help procurement of latest technologies," a DIPP source said.
According to sources, the defence ministry wants FDI hike in phases so that Indian players in the sector equip themselves with latest technology to take on the competition from international players in long run. Defence minister A K Antony is of the view that allowing more FDI in defence sector would enable public and private sectors to play a greater role in modernising Indian armed forces.
The increase in FDI would be subject to guidelines for licensing production of arms & ammunitions under Press Note 2 of 2002. There would be a three-year lock-in period for transfer of equity from one foreign investor to another foreign investor (including NRIs & OCBs with 60% or more NRI stake) and such transfer would be subject to prior approval of the FIPB.
The government has, however, been relaxing the cap on case-to-case basis to enable transfer of technology and manufacture of world-class equipment. For instance, it favoured the recent proposal of increasing the cap to facilitate co-development of multi-role transport aircraft by Hindustan Aeronautics in cooperation with Russian firm Rosoboronexport. The Russian firm wanted at least 50% stake in the joint venture, but the current FDI ceiling came in the way of such a tie-up.
Mahindra Defence Systems and BAE Systems have also applied to the FIPB to set up a joint venture, in which BAE would hold 49% stake. The government���s move to allow 49% FDI would rule out the need to approach the Cabinet in every case. Of late, countries such as the US and the UK have intensified demands to increase FDI cap in defence production.
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The government has, however, been very reluctant in allowing foreign companies to take more than 26% in any JV for defence production. Aircraft manufacturers such as Boeing Company, Bombardier and EADS have recently shown interest to set up their production facilities in the country in partnership with Indian firms.
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