India To Allow 100 Percent FDI In Defense?

India may allow 100 per cent foreign direct investment in defence to help increase domestic manufacturing.

The department of industrial policy & promotion (DIPP) has prepared a draft Cabinet note that proposes the plan.

The newly-elected government’s top priority is to reviving manufacturing and DIPP is said to be pursuing new ideas among which are three different caps for FDI in defence — 49 per cent, 75 per cent and 100 per cent — which propose incentivise technology transfer. 

The department has also proposed allowing 49 per cent FDI in case of no technology transfer and 74 per cent where there is a technology transfer. The no-cap policy should be reserved strictly for cases which bring in state-of-the-art technology and entry though the automatic route may still be barred on account of security-related concerns are among other suggestions.

Several foreign companies who wish to partner with Indian companies have held their hand due to the cap on equity holding which would render them a minor player in the partnership. Several partnerships have collapsed due to the restrictions, most notable is the joint venture between Mahindra and Mahindra and BAE System.

The FDI issue is also bogging down the implementation of offsets in India as it is preventing foreign partners from bringing in sufficient capital to kick start their JVs with Indian entities.

In May, the Federation of Indian Chambers of Commerce and Industry (FICCI) released a statement saying it would be “strongly advocating policy regimes that facilitate building a strong Defence Industry in India. Towards this FICCI supports defence industry's apprehensions on the serious implications of Consolidated FDI Policy Circular of 2014 (effective from April 17, 2014) issued by Department of Industrial Policy and Promotion on the continuance of Indian conglomerates, both Public as well as Private, in the defence business.”