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In the Modi Government's first Budget, Finance Minister Arun Jaitley has hiked the foreign investment limit in the defence sector. India is the biggest buyer of defence equipment in the world.
Foreign direct investment (FDI) in defence manufacturing has been hiked from 26 per cent to 49 per cent. The FM said the ownership of such joint ventures would stay with Indian companies.
The Government has started working towards minimising defence imports and encouraging local manufacture with this move.
The FM added that the Narendra Modi Government wanted to promote FDI `selectively'. For some time now, the Government has been keen to develop the indigenous defence industry and reducing dependence on imports.
More foreign companies would now be willing to team up with and partner Indian companies given the FDI relaxation.
Last year alone, India imported nearly $1.9 billion of military equipment from the US, making it the biggest foreign buyer of US weapons. For four decades, Russia was India's largest arms supplier. The US charged ahead last year displacing Russia with large-scale deals, according to the defence and security analysis group, IHS Jane's.
India is also outpacing other countries. India has overtaken China to become the biggest arms importer in 2010, according to the Stockholm International Peace Research Institute, which monitors global arms trade. Last year, the country imported the C-17 Globemaster III and the P-8I multi-mission aircraft, among others.
However, analysts termed the move disappointing. Amber Dubey, Partner and India head of aerospace and defence at global consultancy firm KPMG said, “49 per cent in defence FDI is disappointing. Makes no difference from 26 per cent technically. The hike to 49 per cent may create the same issues of sleeping partners and ‘effective control’ as we have seen in the case of the airline sector.”
He added that airlines too are subject to a 49 per cent FDI limit, and that the move would mean more paperwork, more public interest litigations, more power to lawyers and consultants.
“India is the bigger loser”', he said, adding, “we have just pushed away investments in defence manufacturing by another year. Round 1 to protectionist forces. Hope better judgement prevails and we have higher FDI, with adequate checks and balances, announced later this year.”
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