India Likely To Approve 100% Foreign Direct Investment In Defence Sector

India is Contemplating 100 per cent Foreign Direct Investment (FDI) in the defence sector to stimulate the participation of foreign companies in the manufacture of military transport aircraft, battle tanks and armoured vehicles.

Presently foreign investment is permitted only up to 49% under the automatic route and foreign investment upto 100 per cent is allowed only after government’s approval. The disadvantage of the current system is that major foreign firms stay away as they are reluctant to agree for transfer of technology.

Finance Minister Arun Jaitley, who had held a meeting with government officials recently, conducted a review of the current FDI policy, The Hindu BusinessLine reported Sunday.

 The cabinet has been eyeing to liberalise the FDI regime to attract foreign investments in various sectors, including defence and retail.

The FDI policy is subject to industrial licence and such licences are granted by the Licensing Committee in the Department of Industrial Policy and Promotion (DIPP), which considers the security clearances by the Ministry of Home Affairs.

The DIPP officials maintain that FDI in defence has been slow possibly because the returns on investment and government orders. However, FDI in defence could reverse the trend of India's full dependence on imports of defense equipement.

Few critics also point out at the disadvantage that higher FDI will be a hassle in building self-reliance in the sector, and likely to hamper the country’s interests.

Few officials said that the defense sector is in urgent need of significant capital investment and infusion of technology.