Hundred per cent foreign direct investment in defence manufacturing has been termed the need of the hour with senior government officials pushing for the inclusion and participation of foreign companies in the manufacture of military transport aircraft, battle tanks and armoured vehicles.

Finance Minister Arun Jaitley had held a meeting with government officials recently and conducted a review of the current Foreign Direct Investment (FDI) policy. The government has been looking to further liberalise the FDI regime to attract foreign investments in various sectors, including defence and retail.

An official present during this meeting said that the FDI policy is subject to industrial licence and such licences are granted by the Licensing Committee in the Department of Industrial Policy and Promotion (DIPP), which takes into account the security clearances by the Ministry of Home Affairs.

Senior officials in the DIPP said a proposal sent by NITI Aayog regarding encompassing more foreign participation in defence production was discussed at the meet, as was the urgent need for India to partake of the large global demand for tanks and armoured vehicles.

"Currently, foreign investment up to 49 per cent is permitted under the automatic route, and foreign investment beyond 49 per cent and up to 100 per cent is permitted through government approval. Though this will bring in access to modern technology for the forces, major defence multinationals prefer to remain on the sidelines and are not interested in real transfer of technology," government sources said, while requesting anonymity.

Multinationals in the defence sector are keen to invest in manufacturing facilities, “if they are given control. This fact has been pointed out to the government at several meetings with the multinational representations", sources added.

The DIPP officials maintain that FDI in defence has been slow given the uncertainty of returns on investment and the ambiguous nature of government orders, whereas increasing FDI in defence could help reverse the trend of India's complete dependence on defence equipment imports.

However, some critics emphasise that higher FDI will be a hurdle in building self-reliance in the sector, and can hamper larger national interests.

Under the automatic route, 76 per cent FDI is allowed for producing fighter aircraft and helicopters. However, "this has not really propelled the 'Make in India' initiative in the defence sector," officials charged.

To buttress their point, officials pointed out to the meagre FDI received since a year ago. From July 2016 to January 2017, FDI worth ₹0.61 lakh was received from Elbit Systems Land and C41 Ltd, Israel, in BF Elbit Advanced Systems Pvt Ltd.

Referring to lack of interest by defence multinationals, sources pointed out that the sector was in “dire need of significant capital investment and infusion of technology. India is one of the biggest buyers of foreign arms globally”.

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