FDI IMPACT. Defence: greater clarity on ‘control & ownership’

In a major policy change, the Centre has made it simpler for foreign defence firms to invest in India, even as it clarified their queries on the ‘ownership and control’ issue, inching a step closer towards bringing it under automatic route.

The Centre has removed the phrase “state-of-art” and replaced it with “modern technology” and “other reasons” in the amended version.

“Foreign investment beyond 49 per cent has now been permitted through the government approval route, in cases resulting in access to modern technology in the country or for other reasons to be recorded. The condition of access to ‘state-of-art’ technology in the country has been done away with. The FDI limit for defence sector has also been made applicable to the manufacturing of small arms and ammunitions, covered under Arms Act, 1959,” an official release said.

The move follows the Centre coming under “severe pressure” from some of the leading international players over the issue of “control and ownership” in the defence sector, who were seeking more clarity, an official told BusinessLine .

On the other hand, the Centre is also keen to attract big-ticket investments that will further propel its Make in India campaign. But no foreign OEMs were forthcoming because they all wanted ‘control and ownership’. The government is hopeful that the new changes will see more and more investments coming into the sector, sources said.

Pierre De Bausset, President, Airbus Group India, called the step “pragmatic”, although he did not clarify whether Airbus Defence will bring in 100 per cent FDI.

“The new policy wording communicates the realisation that there may be several other genuine reasons for the government to allow more than 49 per cent stake to the foreign OEM in a joint venture with an Indian company and they want to take advantage of these for the benefit of the indigenous industry,” he said.

However, according to another international defence firm which refused to be named, more clarity is required and the word ‘modern’ has to be defined, without which it will be “difficult” to bring in 100 per cent FDI.

According to industry experts, foreign defence giants like Boeing, SAAB, Lockheed Martin and Thales are expected to open their international assembly lines here.

“The fact that there was no control permitted earlier was a major issue that was quoted for not investing in India. That obstacle has now been removed. Coupled with the major simplification in the Defence Procurement Procedure, OEMs should respond positively and proactively to these path-breaking reforms,” said Dhiraj Mathur, Partner - Aerospace & Defence, PriceWaterhouseCoopers. 

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