Analysts and the industry say overseas firms may not be enthused by the hike in foreign direct investment cap to 49 per cent announced today by Finance Minster Arun Jaitley. Despite the hike, the Government has kept foreign players out of operational control of the company and intellectual property issues unresolved, said businesspersons at a post-budget discussion here on Thursday.

Hitherto, a foreign company can invest through the Foreign Investment Promotion Board up to 26 per cent, while higher investments will be vetted by various Government departments based on technology transfer clauses. Now, investments up to 49 per cent are allowed through the easier route, provided there is “Indian management and control.”

“We may not see any action on this front in the near future,” R Sivaraman, former Revenue Secretary who had also been an Executive Director at International Monetary Fund, told Business Line. He added the provision to vest control with Indian directors will drive away investors. FICCI had pitched for a foreign investment limit of 75 per cent in the sector. He said American multinationals such as Lockheed Martin, Boeing and Airbus are waiting in the wings but will not be willing to part with technology.

Step in right direction

This is a step in the right direction. Though there are other limiting clauses such as the requirement that the chief executive should be a resident Indian, the defence sector will brighten up with this move, said Vinay Khattar, Head of Research and Economics, Edelweiss. “Some entities in the Confederation of Indian industry and the Home ministry were not comfortable hiking it beyond 50 per cent,” said Rafeeque Ahmed, Chairman of FICCI TNSC.

Sivaraman said firms in the space such as Larsen & Toubro demand access to technology and exposure to certain markets. According to FIPB data, defence industries drew FDI totalling Rs. 24.36 crore during 2000-2014 against a total inflow of Rs. 10.54 lakh crore.