July 9, 2014

Union Budget 2014: Govt readies plan for 51% FDI in defence

Ahead of the Budget, the government is ready with a series of proposals to increase overseas flows into the economy, including a composite foreign investment ceiling that includes shares held by FIIs and venture capital firms and slightly diluted norms for FDI in defence. A formal proposal to allow 100% in the several segments of the construction business is also ready and will be sent for consultations over the next few days.

Senior government officials told TOI that the department of industrial policy and promotion, which had proposed a graded regime in regime that allowed 74% FDI if a foreign investor transferred technology and 100% for state-of-the-art equipment is now willing to lower the bar a little. So, a fresh plan that seeks to increase the ceiling from 26% to 49% for cases without transfer of technology and 51% with technology transfer is being discussed.

The dilution in stance follows defence ministry's reluctance for a ceiling beyond 49%, a position which is also held by several large Indian corporate houses such as Larsen & Toubro and Bharat Forge. L&T has gone public with its stance against allowing foreign investors to hold over 49% in Indian defence ventures.

"On FDI, we are not aware of the precise contours of government policy on FDI in defence. However, we do see the need for significant investment in the sector and investment, including from the Indian private sector, deserves encouragement," a Tata Sons spokesperson said. Government officials said that Prime Minister Narendra Modi may take a final decision on the FDI cap for defence.
But there seems to be more support to the proposal for a composite foreign investment limit for several sectors such as private banks, commodity and stock exchanges, where 49% foreign investment is allowed but there is a sub-limit for FIIs. "These issues create operational problems and open the entire regime to legal interpretation. The government is discussing the changes to make life simpler for investors," said an official, who did not wish to be identified.

In construction, where the government current allows only limited play for foreign investors, restrictions such as those on constructing farm houses will stay several segments of the business will be opened to 100% FDI, said sources.

The government is keen to announce a set of measures to send a message to the investor community that India is open for business. 
- Times of india

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