The government is looking at easing foreign direct investment (FDI) in the defence sector by allowing 100 per cent foreign equity in the production of battle tanks, military transport aircraft and armoured vehicles under the automatic route.

“This is going to be the most liberal FDI policy. The idea is to attract ₹35,000 crore investment in the defence sector in the next five years. This is based on the Defence Ministry’s objective to go for self-reliance and reduce import dependence,” a top official told BusinessLine requesting anonymity.

It has also been decided that 76 per cent FDI will be allowed under the automatic route for fighter aircraft and helicopters and 51 per cent for submarines and warships, the official said.

Under the proposed policy, which is likely to be announced once the Monsoon session of Parliament is over in mid-August, 100 per cent FDI under automatic route will be allowed only in those segments where at present there is no expertise and no technology available in the country, such as armoured vehicles, battle tanks and military transport vehicles.

Dialogue with industry

The government has held a series of dialogues with the Indian industry and foreign original equipment manufacturers (OEMs) on this matter. The Defence Ministry seems to believe that unless there is large-scale FDI entering the Indian defence market, there will be no real transfer of technology .

“Only if the OEMs are allowed to invest over 51 per cent, do they get ownership. And in defence, ownership is important as it involves controlling the technology. If there is no ownership, there will be no technology,” the official added.

This is expected to boost inflow of investments from companies such as Airbus, Boeing, Naval Group, SAAB, Lockheed Martin and others that are eyeing the Indian market and having ‘control and ownership’, which is possible only if they are allowed to invest over 49 per cent.

FDI in defence sector has been at a paltry $6 million in the last 10 years, according to official statistics.

Additionally, all those categories where FDI under the automatic route is below 100 per cent, will be granted 100 per cent FDI on a case-to-case basis, considering the kind technology that will be brought into the country.

Under the automatic route, a foreign firm is not required to obtain the government’s approval for its investment proposal.

According to sources, the process began a couple of months ago, based on the recommendations of the Prime Minister’s Office to increase investment in the sector by way of boosting production under the government’s flagship ‘Make in India’ programme.

“This will also transform India into a defence export hub, as in the automobile segment. This will also help in job generation. Local jobs will be created and they will be exposed to high technology products,” the official added.