NEW DELHI: Providing a boost to inflow of investment in defence manufacturing, the Narendra Modi government on Thursday hiked the foreign direct investment (FDI) limit in the sector to 49 per cent from the existing 26 per cent.
Finance Minister Arun Jaitley, who also holds defence as an additional portfolio, announced during his budget speech that the FDI ceiling was being hiked, but the management of joint ventures thus formed under the new FDI limit would still be in Indian hands. However, the noises from the industry, particularly those from abroad, for hiking the FDI limit to 100 per cent has not been acceded to by Jaitley. “Currently, we permit 26 per cent FDI in defence manufacturing. The composite cap of foreign exchange is being raised to 49 per cent with full Indian management and control, through the FIPB (foreign investment promotion board) route,” Jaitley told the Lok Sabha.
“Our domestic manufacturing capacities are still at a nascent stage. We are buying a substantial part of our defence requirements directly from foreign players. Companies controlled by foreign governments and foreign private sector are supplying our defence requirements to us at a considerable outflow of foreign exchange,” he said.
The FDI limit would now be automatically agreed to if it is within 49 per cent and approved by the FIPB in the Commerce Ministry, provided the Defence Ministry licence is obtained for the same. However, the government’s policy is to allow higher FDI limit in ventures above 49 per cent if the foreign investor would bring in or transfer latest, modern and state-of-the-art technology to the Indian venture. In such a case, the Cabinet Committee on Security would provide approval.
The FDI limit hike in defence sector now meets a longstanding demand from the industry to allow for greater inflow of investment and technology transfer that would enable creation of a domestic military industrial base in the private sector.