September 29, 2010

BAE Systems accepts System Integration Facility Clause enabling 74 per cent FDI in Defense

By India Defense - Global defence security and aerospace major BAE Systems is ready to accept Government's rider that 74 per cent FDI in defence sector be allowed only if a foreign bidder sets up its hi-tech system integration facility in India. In its recent discussion paper, the Department of Industrial Policy and Promotion (DIPP) suggested that foreign direct investment in the defence production be raised from 26 per cent to 74 per cent, subject to system integration facility (SIF) in India.

It had said that whenever the Ministry of Defence invites the "Requests for Proposals (RFP)" for its future weaponry requirements, it must be with the condition of SIF in the country. However, according to sources, doubts were raised in certain government quarters whether such terms would be acceptable to global defence vendors, which have remained reluctant to share technology.

"The imposition by the MoD of a condition in an RFP that the successful bidder set up a SIF (or use an already existing facility) in India with a certain minimum percentage of value addition in India would be consistent with encouraging OEMs to commit resource, capability and capital India's growing Defence industry," BAE Systems said in its response to the discussion paper to the DIPP.

Besides, BAE, a mega European aerospace is "in talk with the government on the SIF issue and seem to be ready to toe our line," a senior official said.

As one of the largest users and importers of conventional defence equipment, India's cumulative defence budget has been growing at 13.4 per cent since 2006-07 rising up to Rs 1,47,344 crore (USD 31.9 billion). Of this, about 40 per cent is the capital expenditure and 70 per cent of which is met through imports.. 

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