FDI cap hike: investments in Defence sector set to go up

The difference between Indian and multinational players over foreign direct investment rules in the defence sector seems to have been resolved with both sides welcoming the Government’s decision to allow 49 per cent foreign investment.

The Government was earlier looking at allowing 100 per cent FDI, which the Indian players had apposed. On the other hand, the foreign players wanted a higher holding than the existing 26 per cent cap. By increasing the cap to 49 per cent the Government has taken a middle path.

SP Shukla, Member-Group Executive Board and President- Defence Sector & Group Strategy, Mahindra & Mahindra, said the government has taken a nuanced and optimal approach. “This will facilitate higher commitment by current and potential foreign investors in their joint venture projects, both through increased investments and technology transfers. We at Mahindra Defence, with our technology portfolio encompassing all three wings are committed to develop and absorb the latest technology to build a wide range of sophisticated defence equipment.”

Tata Group also said that the decision would encourage investment. “We do see the need for significant investment in the sector and such investment, including from the Indian private sector, deserves encouragement. The Tata group’s presence in the sector is substantial, growing and reflects our commitment to playing our role in the growth of the sector,” said a Tata Sons spokesperson.

Ever since the Government opened up the Defence sector to FDIs, only a meagre $4.8 million funds have come in. The Kelkar Committee Report had emphasised the need for a greater role for the private sector in Defence manufacturing.

While foreign players would have liked 100 per cent FDI, companies such as Rolls –Royce said that even a 49 per cent cap increases the attractiveness of the sector compared to 26 per cent.

Kishore Jayaraman, President, Rolls-Royce India & South Asia, said, “This is a step in the right direction towards realising the country’s efforts in obtaining strategic self-reliance. It will help will catalyse rapid indigenisation and substantially increase the attractiveness of the sector as a place to transfer technology and set-up a manufacturing hub.”

Sujith Haridas, Deputy Director-General, Confederation of Indian Industry, said the increase in FDI cap along with other recent decisions by the Government would benefit the Defence sector.