Defence firms expect robust foreign inflows post FDI relaxation

Nayanima Basu New Delhi | Updated on January 22, 2018

An Anti-Aircraft Gun System on display at a Defence Expo in Delhi. Foreigninvestment up to 49% in the defence sector will get automatic approval

Move to boost govt’s Make in India programme

Companies in the defence sector such as Rolls Royce and Airbus Group feel that the recent relaxation in Foreign Direct Investment (FDI) norms will fast-track big-ticket investment deals, thereby further strengthening the government’s ‘Make in India’ programme.

“These new guidelines should comfort all foreign OEMs with regards to the risk, reward balance of their investments, and they should facilitate fair allocations commensurate with each partner’s contribution,” Pierre de Bausset, President, Airbus Group India, told BusinessLine.

Bausset added such a measure will enable the creation of a robust defence industrial base leading to self-sufficiency, thereby making India an export hub of defence products.

Airbus Helicopters, a division of Airbus Group, recently announced a tie-up with Mahindra Defence to manufacture helicopters for Indian armed forces.

As per the new norms, foreign investments up to 49 per cent will be approved automatically. But proposals that exceed this limit will require approval from the Foreign Investment Promotion Board (FIPB). Additionally, for proposals exceeding entailing investments over ₹5,000 crore will also require the nod of Cabinet Committee on Economic Affairs (CCEA). However, the proposals will require security clearance as it requires industrial licence.

“The government has already introduced major decisions to encourage indigenous defence production. We have full confidence that the government will step up its efforts to acquire cutting edge engineering technologies, and the country will emerge as a major low-cost and high-quality manufacturing powerhouse in coming years,” said Kishore Jayaraman, President, Rolls-Royce (India and South Asia).

The defence sector is expected to achieve market size of around $250 billion by 2025, according to CII.

Analysts, however, believe that FDI up to 74 per cent should be allowed in defence.

“There are already murmurs of dissent on the recent government decision to allow 49 per cent FDI through the automatic route. The government should ignore these voices and move on. By keeping these roadblocks, not one’s gaining – neither India not the OEMs. The loss of potential jobs and foreign exchange has other painful ramifications too,” said Amber Dubey, partner and India Head of Aerospace and Defence, KPMG.

Published on November 19, 2015

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