Defence ministry wants FDI capped at 49%

NEW DELHI: Putting a spanner in the industry department's plan to allow up to 100% FDI in the defence sector, the defence ministry has suggested that the ceiling should be raised to 49% from 26% — a move that is in line with the view expressed by a majority of domestic companies with interest in the sector.

Sources said the ministry has expressed its view during consultations over the proposal, which was moved days after the Narendra Modi government was sworn in.

The department of industrial policy and promotion (DIPP), which is piloting the proposal, is, however, averse to a limit of anything under 51%, arguing that no foreign investor will transfer technology without majority control over the Indian venture. Besides, it is of the view that by limiting the overseas investment limit at 49%, the Modi administration would only be going back to the pre-August 2013 regime, when the government allowed 26% FDI, with another 23% permitted via the FII window.

DIPP's draft cabinet note had suggested that 49% FDI should be allowed in ventures without any transfer of technology. In companies where the foreign partner is willing to transfer the know-how, it proposed to allow overseas players to hold up to 74%, while 100% was suggested for companies engaged in manufacturing state-of-the art equipment and machinery, or those undertaking modernization of projects.

During his election campaign Modi had spoken of greater private participation in the defence sector, something that was also stated by president Pranab Mukherjee in his first address to both Houses of Parliament after the BJP government was sworn in. In its election manifesto, BJP had said that it was open to FDI in all sectors other than multi-brand retail.

In fact, liberalization of the FDI regime in some of the sectors is expected to be among the major announcements by finance minister Arun Jaitley in his maiden Budget next week. Apart from defence, DIPP has also moved a draft note for allowing FDI in certain segments of Railways. But, it has put plans to allow foreign flows in B2C e-commerce on the backburner amid fears that it would be allowing FDI in multi-brand retail through the back door.

Despite the defence sector being opened to foreign investment in 2001, when NDA was in power, the segment has seen overseas flow of under $5 million, which is the lowest among 62 sectors that are tracked by the government. - Times of india