India’s Defense Sector Prepares for 100% Foreign Direct Investment

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FDI proposals for 100% have to be in areas where India lacks either the existing capabilities or is not even developing it.

NEW DELHI (Sputnik) — India is planning to further liberalize its defense sector by allowing 100 percent foreign direct investment (FDI) in projects. The move is mainly aimed at curtailing the striking slowdown in the defense sector which has failed to attract huge investments in recent years despite the introduction of sweeping reforms in defense investment rules.

Disclosing the government’s agenda, defense ministry officials said that 100 percent FDI would be allowed in cases where foreign firms would be willing for the complete transfer of technology.

“The government of India would be open to considering 100 percent FDI in defense, should the company be willing to provide full technology transfer,” Ashok Kumar Gupta, India’s Secretary of Defense Production was quoted as saying during his interaction with representatives of US corporate sector.

Earlier in July, Sputnik had reported that Narendra Modi government was mulling relaxation in rules to invite major global defense firms in domestic production of armored vehicles, battle tanks and military transport aircraft under the automatic route.

Industry experts are of the opinion that 100 percent FDI would be a welcome move provided more is done to remove barriers.  

“FDI is something which has not worked till now. The automatic route of 49% is no longer enough now. Is there something else we are missing? One choice is to remove the 49% barrier and enhance it to at least 74% under the automatic route without any barrier. You can go up to 100% FDI with the special provision on the transfer of technology. We need to really change the way what is being done in the FDI in itself. Until and unless that is done, we will not see major FDI inflow,” Puneet Kaura, Managing Director & CEO of Samtel Avionics told Sputnik.

Sources told Sputnik that the government will allow any foreign entity to purchase 76% equity in Indian defense firms engaged in fighter aircraft and helicopters manufacturing under the automatic route and 51 % for submarines and warships.

India’s defense sector has attracted only $1 million investment in last two years and a paltry $6 million in the last 10 years. Most of the foreign direct investment (FDI) has come from traditional partners like United Kingdom, France, and Israel.

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