Indian Defense Manufacturers To Benefit From Offsets With FDI Raised To 100 Percent

Indian defense manufacturers will benefit from offsets and access modern technology with the government’s move to allow Foreign Direct Investment (FDI) to 100 percent in the sector, M N Vidyashankar, President, India Electronics and Semiconductor Association said.

“With the FDI the MNCs (multi-national companies) wanting to invest in India will need local backup, resources, and manufacturing capabilities and comforts to deal with local vendors. Apart from Research and Development, they will be ready to share anything with the domestic companies. In fact, there was a request from the association (IESA) to increase the percentage of FDI in defense as any investment in India comes with offsets. Local manufacturers and vendors will benefit hugely from offsets attached to the investments,” Vidyashankar told Defenseworld.net Wednesday.

According to the announcement made by the government on Monday, foreign investment in defence, beyond 49 per cent (and upto 100 per cent) has been permitted through the government approval route, in cases resulting in access to modern technology in the country.

“A 100% FDI in defence will create a win-win situation for the country’s defence forces, local industries and international OEMs. It will ensure availability of cutting edge technologies for the defence forces, boost local manufacturing in India and provide assured returns for international OEMs. The move will also enhance overall R&D to develop and deploy solutions catering specifically to the country’s security needs,” LiveMint quoted Tata Motors Ltd spokesperson as saying Wednesday.

The new policy also eases procedural hurdles.

Under the earlier policy, an OEM or manufacturer looking to set up a wholly owned subsidiary required approval from the Cabinet Committee on Security. This entailed getting a clearance from ministry of defence, ministry of external affairs, ministry of home affairs and the ministry of defence and proving that the technology/product sought to be manufactured was modern and state of the art.

“By removing the burden to prove the product/ technology as modern and state of the art, a significant regulatory hurdle has been removed,” Kabir Bogra, associate partner at consulting firm Khaitan & Co was quoted as saying by the news daily.

An added benefit of the new rules will be encouraging defence exports. Removing the provision that required OEMs to prove that their products are modern and state of the art, will allow these companies to relocate production of slightly older and off-the-shelf products to India, which was not possible earlier.