Scams in the Defence sector have long been political hot potatoes, with the latest one on helicopter purchase reopening the debate on whether the country needs to import key Defence equipment.

In this backdrop, the Chief Economic Advisor, Raghuram Rajan, has advocated initiating a debate on liberalising foreign direct investment (FDI) norms in the sector.

At present, according to the FDI circular (with effective from April 10, 2012), the Defence industry, subject to industrial licence under the Industries (Development & Regulation) Act 1951, is permitted FDI up to 26 per cent through the approval route. However, there are strict norms attached to this limit.

In a chat with newspersons here on Thursday, Rajan said: “One area that we need to debate, I think, is Defence. It is an area which we have left relatively untouched.

We have to ask whether it is better to import our Defence equipment or actually have foreign producers in joint ventures domestically.”

Rajan said, “At some level, I think it is of greater benefit to national security in having a production facility here, whosoever controls it, than depend upon a production facility abroad.”

He admitted that this would not a simple debate. But still, there is need to engage on this issue, he added.

Shishir.Sinha@thehindu.co.in

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