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NEW DELHI: India continues to struggle in attracting foreign investment in the defence sector despite the Modi government having hiked the FDI cap from 26% to 49% in August last year.
Latest figures tabled in Parliament on Tuesday show the government has got just six FDI proposals worth a paltry Rs 96 crore ($15.3 million) in the defence production sector, with only two of them being for 49%, in the last seven months.
Contrast this measly figure with the fact that India - which inked defence deals worth $60 billion over the last decade -- is poised to spend another $120 billion on arms acquisition over the next 10 years.
Moreover, the Modi government has made FDI in defence one of its central pillars to build a strong defence industrial base (DIB) under the "Make in India" policy, the absence of which places the armed forces in the strategically-vulnerable position of importing 65% of their hardware and software requirements.
The defence ministry, however, contends it's "too early" to assess the impact of the change in the FDI policy notified in August 2014. Under it, 49% FDI is allowed through the FIPB route, and above 49% with Cabinet Committee on Security's approval on a case-to-case basis "wherever it's likely to result in access to modern and state-of-the-art technology".
It may be early days yet but global armament majors do not seem much enthused about the 49% FDI cap. "It's a step in the right direction but not sufficient. Many companies will not set up base or transfer crucial technologies without management control of the joint ventures," said the India head of a top company.
Greater FDI, they argue, will bring in much-needed capital and top-notch technology in the Indian defence sector. "India buys so much from abroad. Will it not be better that foreign arms vendors are encouraged to set up manufacturing facilities here?" said an official.
The naysayers, however, contend fledgling Indian defence companies will simply wilt under the onslaught of global majors if they are allowed unrestricted entry into the Indian market. "Moreover, it remains to be seen if foreign companies will actually bring cutting-edge technology. Most are governed by control laws of their own countries," said an official.
There is also the fear of national security being compromised in the "sensitive" defence sector, which A K Antony frequently used to torpedo all attempts to hike the 26% FDI cap during his almost eight years as defence minister.
The Modi government, however, says several safeguards are in place in its FDI policy. The applicant company seeking permission for FDI up to 49%, for instance, should be an Indian company owned and controlled by resident Indian citizens.
A resident Indian citizen should also be the chief security officer of the joint venture, which will also undergo external security audits by intelligence agencies once in two years and cyber security audits once every year.
Hike in defence FDI cap fails to lure investors - The Times of India
Latest figures tabled in Parliament on Tuesday show the government has got just six FDI proposals worth a paltry Rs 96 crore ($15.3 million) in the defence production sector, with only two of them being for 49%, in the last seven months.
Contrast this measly figure with the fact that India - which inked defence deals worth $60 billion over the last decade -- is poised to spend another $120 billion on arms acquisition over the next 10 years.
Moreover, the Modi government has made FDI in defence one of its central pillars to build a strong defence industrial base (DIB) under the "Make in India" policy, the absence of which places the armed forces in the strategically-vulnerable position of importing 65% of their hardware and software requirements.
The defence ministry, however, contends it's "too early" to assess the impact of the change in the FDI policy notified in August 2014. Under it, 49% FDI is allowed through the FIPB route, and above 49% with Cabinet Committee on Security's approval on a case-to-case basis "wherever it's likely to result in access to modern and state-of-the-art technology".
It may be early days yet but global armament majors do not seem much enthused about the 49% FDI cap. "It's a step in the right direction but not sufficient. Many companies will not set up base or transfer crucial technologies without management control of the joint ventures," said the India head of a top company.
Greater FDI, they argue, will bring in much-needed capital and top-notch technology in the Indian defence sector. "India buys so much from abroad. Will it not be better that foreign arms vendors are encouraged to set up manufacturing facilities here?" said an official.
The naysayers, however, contend fledgling Indian defence companies will simply wilt under the onslaught of global majors if they are allowed unrestricted entry into the Indian market. "Moreover, it remains to be seen if foreign companies will actually bring cutting-edge technology. Most are governed by control laws of their own countries," said an official.
There is also the fear of national security being compromised in the "sensitive" defence sector, which A K Antony frequently used to torpedo all attempts to hike the 26% FDI cap during his almost eight years as defence minister.
The Modi government, however, says several safeguards are in place in its FDI policy. The applicant company seeking permission for FDI up to 49%, for instance, should be an Indian company owned and controlled by resident Indian citizens.
A resident Indian citizen should also be the chief security officer of the joint venture, which will also undergo external security audits by intelligence agencies once in two years and cyber security audits once every year.
Hike in defence FDI cap fails to lure investors - The Times of India
