Higher FDI in India’s Defence sector will not only bring Higher Revenue and State-of-The-Art Technology, It will also Pave way for Self-Sufficiency in The Crucial Sector of defence Production.
For a country such as ours which spends billions of dollars every year to import nearly 70% of its total military equipment, the government seems to be stuck with the country’s defence establishment still reluctant to lift the 26% cap on foreign direct investment (FDI) in the “sensitive” sector of defence production. Despite India being one of the biggest users of conventional defence equipment and the cumulative defence budget growing at the rate of over 13% annually since 2006-07, we continue to depend heavily on imports for all our major requirements, with domestic production limited to low technology items and some based on bought technology.
In a discussion paper floated last year seeking stakeholders’ views, the Department of Industrial Policy and Promotion (DIPP), under the Ministry of Commerce, had favoured 100 per cent FDI in defence in order to attract foreign technology. It further called for an urgent need to ‘enhance the deterrent and the operational capabilities of the armed forces’. The paper also stated that almost 50% of India’s defence equipment was suffering from obsolescence while merely 15% could be called state-of-the-art.
The government, however, now seems to be keen on allowing greater participation of the private sector and expert players in the defence sector to invite higher technology in the sector. With strong backing from both the Finance and Home ministries, the Ministry of Commerce and Industry is learnt to be preparing to move a Cabinet note on increasing the cap on FDI in the defence sector to 49%.
The case for a firm government stand on increasing the FDI cap is backed by the fact that it is of vital importance to the defence sector which is highly capital intensive and where technology requires frequent upgrading. FDI is not just a subject of getting funds, it also facilitates access to the latest technologies and provides for a long term commitment between the foreign and local enterprise. It creates a sort of a cycle where the foreign investment upgrades local technology which, in turn, attracts more FDI with higher technology.
Despite the presence of such alluring factors, the Union minister for Defence A K Antony has registered his firm disagreement with the said proposal on the ground that the Indian defence sector was not matured enough to absorb higher FDI. He did however mention at a conference last year that higher FDI in the long run could not be ruled out and said that the ministry could consider permitting it on a case-by-case basis. The reluctance of the defence establishment, sources say, is also based on the rather conventional belief that defence is a sensitive sector and that opening doors to foreign players could lead to security concerns.
In a discussion paper floated last year seeking stakeholders’ views, the Department of Industrial Policy and Promotion (DIPP), under the Ministry of Commerce, had favoured 100 per cent FDI in defence in order to attract foreign technology. It further called for an urgent need to ‘enhance the deterrent and the operational capabilities of the armed forces’. The paper also stated that almost 50% of India’s defence equipment was suffering from obsolescence while merely 15% could be called state-of-the-art.
The government, however, now seems to be keen on allowing greater participation of the private sector and expert players in the defence sector to invite higher technology in the sector. With strong backing from both the Finance and Home ministries, the Ministry of Commerce and Industry is learnt to be preparing to move a Cabinet note on increasing the cap on FDI in the defence sector to 49%.
The case for a firm government stand on increasing the FDI cap is backed by the fact that it is of vital importance to the defence sector which is highly capital intensive and where technology requires frequent upgrading. FDI is not just a subject of getting funds, it also facilitates access to the latest technologies and provides for a long term commitment between the foreign and local enterprise. It creates a sort of a cycle where the foreign investment upgrades local technology which, in turn, attracts more FDI with higher technology.
Despite the presence of such alluring factors, the Union minister for Defence A K Antony has registered his firm disagreement with the said proposal on the ground that the Indian defence sector was not matured enough to absorb higher FDI. He did however mention at a conference last year that higher FDI in the long run could not be ruled out and said that the ministry could consider permitting it on a case-by-case basis. The reluctance of the defence establishment, sources say, is also based on the rather conventional belief that defence is a sensitive sector and that opening doors to foreign players could lead to security concerns.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
