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Indian defence companies urge government to increase FDI cap | beyondbrics | FT.com
Indian companies are pressuring the government to allow greater foreign participation in its defence industry as New Delhi gears up to spend more than $100bn over the next decade to modernise its archaic Soviet weapons-equipped armed forces.
Indias armed forces badly want access to the latest in high-tech weaponry - technologies that now belong to global defence contractors. Yet New Delhi also has a target of procuring 70 per cent of its defence equipment within India.The only way these two seemingly irreconcilable aims can be met is if global companies can be enticed to share their cutting edge technologies with Indian joint venture parties - but that hasnt been happening, as India limits foreign direct investment in defence industries to 26 per cent.
This week, the Confederation of Indian Industry has weighed on the issue, urging New Delhi to raise its cap on foreign direct investment in defence to entice global defence players to enter the Indian market, and share cutting edge technology.
The CII said that 57 per cent of industries surveyed felt the FDI cap on defence, now at 26 per cent, should be raised to 49 per cent, a view especially held by Indian companies trying to move into defence production.
Until 2001, India did not even permit domestic private investment in defence industries, which was a total monopoly of public sector enterprises. When India decided to allow private Indian firms to get into defence, it conceded that companies making defence equipment could have up to 26 per cent foreign equity.
But with a few exceptions - such as the BAE tie-up for trucks and artillery with Mahindra & Mahindra, international defence companies are generally reluctant to enter such arrangements - especially if it involves sharing sensitive technologies with joint-venture companies over which they would have such limited control. Many Indian defence companies like Hindustan Aeronautics Ltd and Bharat Electronics Ltd are state-owned and the sector is opaque.
Indian firms argue that that raising the FDI cap to 49 per cent would be sufficient to attract more foreign interest. But the debate is likely to be drawn out - and theres little guarantee that the change would be sufficient to secure the latest technologies that Indian industries - and its armed forces - so desperately craves.
Indian companies are pressuring the government to allow greater foreign participation in its defence industry as New Delhi gears up to spend more than $100bn over the next decade to modernise its archaic Soviet weapons-equipped armed forces.
Indias armed forces badly want access to the latest in high-tech weaponry - technologies that now belong to global defence contractors. Yet New Delhi also has a target of procuring 70 per cent of its defence equipment within India.The only way these two seemingly irreconcilable aims can be met is if global companies can be enticed to share their cutting edge technologies with Indian joint venture parties - but that hasnt been happening, as India limits foreign direct investment in defence industries to 26 per cent.
This week, the Confederation of Indian Industry has weighed on the issue, urging New Delhi to raise its cap on foreign direct investment in defence to entice global defence players to enter the Indian market, and share cutting edge technology.
The CII said that 57 per cent of industries surveyed felt the FDI cap on defence, now at 26 per cent, should be raised to 49 per cent, a view especially held by Indian companies trying to move into defence production.
Until 2001, India did not even permit domestic private investment in defence industries, which was a total monopoly of public sector enterprises. When India decided to allow private Indian firms to get into defence, it conceded that companies making defence equipment could have up to 26 per cent foreign equity.
But with a few exceptions - such as the BAE tie-up for trucks and artillery with Mahindra & Mahindra, international defence companies are generally reluctant to enter such arrangements - especially if it involves sharing sensitive technologies with joint-venture companies over which they would have such limited control. Many Indian defence companies like Hindustan Aeronautics Ltd and Bharat Electronics Ltd are state-owned and the sector is opaque.
Indian firms argue that that raising the FDI cap to 49 per cent would be sufficient to attract more foreign interest. But the debate is likely to be drawn out - and theres little guarantee that the change would be sufficient to secure the latest technologies that Indian industries - and its armed forces - so desperately craves.
