Industry body Assocham has urged the Government to hike the foreign direct investment (FDI) limit in defence sector to 100 per cent from the existing 26 per cent.
The chamber’s stance comes at a time when the new Government is in the process of reviewing the FDI limit in defence production and has indicated its intention to increase the same.
The existing 26 per cent cap has failed to attract FDI in the sector with total inflows at below $5 million so far, the chamber said.
Foreign original equipment manufacturers have not come forward to invest in Indian defence, with or without key technologies, because the 26 per cent cap is a disincentive, it said.
“We have suggested that FDI up to 49 per cent be allowed through the automatic route. There should be 74 per cent FDI on transfer of production. Even 100 per cent FDI should be allowed in critical niche or strategic areas on global relocation of facility to India,” DS Rawat, Secretary-General, Assocham, said.
Currently, India imports 70 per cent of defence equipment and components for which it pays in foreign exchange.
Assocham also made a case for removal of withholding tax on royalty paid to foreign companies that provide technology to Indian entities.