NEW DELHI: In a major step towards opening the Indian defence manufacturing sector, the government on Saturday permitted foreign companies to have a majority stake in Indian defence companies through the automatic route. It also announced that the government-owned Ordinance Factor Board would be corporatized. “Defence FDI cap through the automatic route is being raised from 49 per cent to 74 per cent subject to security clearances,” Finance Minister Nirmala Sitharaman said, announcing the measures.
At present, foreign companies don’t need to take government permission if it is below the FDI cap of 49 per cent. Sitharaman stressed that the corporatisation of OFBs did not mean that they would be privatized. The step was taken to improve their performance and enable them to cut costs and overheads. With this step, OFB factories could be listed in the markets in the future. Former Chairman of the Hindustan Aeronatics Limited and CMD of the national helicopter carrier, Pawan Hans, RK Tyagi, hailed the steps of the government but cautioned on the aspect of critical technologies.
“The technology in foreign companies is owned by the government and not the companies,” he said but added that the corporatization would “raise transparency and accountability.” India allows 100 per cent FDI but on a case-to-case basis. As per the figures shared by the Ministry of Defence in the Lok Sabha, $8.8 million (Rs 66 crore) FDI came in defence manufacturing sector in the last 19 years, from April 2000 to the end of 2019.
The finance minister also announced the provision of a negative list, which will preclude a list of weapons that can be imported. There would be a separate budgetary provision for procuring only Indian-made defence items. Sitharaman said the measures would bring down India’s large weapons import bill but clarified that certain high technology systems would still be procured from abroad.
Announcement: FDI limit in defence manufacturing under automatic route hiked to 74% from the existing 49%. (Excluding investments from China and other nations that share a border with India)
Impact: Foreign companies can have controlling stakes in factories
Announcement: Import of specific weapons/weapons platforms will be banned.
Impact: Will boost indigenous manufacturing and will reduce the defence import bill; expected to raise employment.
Procurement process for defence will be made time-bound.
Impact: Ensures timely procurement; savings in cost overruns.
Announcement: Ordnance Factory Board will be corporatized
Impact: Increased transparency and accountability
Announcement: Indigenisation of imported parts
Impact: Help in timely supply & result in foreign exchange savings.
Announcement: Realistic Genera; Staff Qualitative Requirements of weapons & platforms.
Impact: Will save time in identifying the requiredweapon/Platform.