{"id":58874,"date":"2016-06-27T18:26:12","date_gmt":"2016-06-27T12:56:12","guid":{"rendered":"http:\/\/www.mapsofindia.com\/my-india\/?p=58874"},"modified":"2017-04-03T18:13:00","modified_gmt":"2017-04-03T12:43:00","slug":"100-fdi-in-defence-what-it-means","status":"publish","type":"post","link":"https:\/\/www.mapsofindia.com\/my-india\/india\/100-fdi-in-defence-what-it-means","title":{"rendered":"100% FDI In Defence: What It Means"},"content":{"rendered":"

\"100%<\/a><\/p>\n

NDA Government\u2019s Liberalization Policy<\/b><\/p>\n

One of the key buzzwords that the NDA government has brought into sharp focus ever since it took over at the Centre in 2014 is “FDI Liberalization”. The very first NDA-engineered Union Budget for FY 2014-15 saw an increase in the foreign direct investment (FDI) limits in insurance sector and defence sectors to 49 percent. Later, in November 2015, the NDA government once again initiated a slew of liberalization policies. The government eased FDI norms in a number of key sectors including civil aviation, construction, defence and media. Thus, the government allowed Foreign Investment Promotion Board (FIPB) to give FDI proposals of up to INR 5,000 crore a clear “go-ahead”. The limit prior to this liberalization move was INR 3000 crore.<\/p>\n

Last week, the government\u00a0made\u00a0another announcement that is set to make India one of the most coveted investment destinations in this part of the world. The Modi-led government’s decision to build upon November 2015’s FDI liberalization threw open doors to foreign investors, bringing most of the sectors under the automatic approval route. The PMO statement read, “With these changes, India is now the most open economy in the world for FDI”.<\/p>\n

One of the most important changes announced last week include approval for 100 percent FDI in the defence sector. Opening up the defence sector has been on the cards for a long time now and the decision is a very highly debated one too.<\/p>\n

What Does 100 percent FDI in Defence Mean?<\/b><\/p>\n

The government’s current liberalization policy means that foreign companies can now own up to 100 percent equity in the country’s defence manufacturing sector through the automatic government approval route. This also means that the sector is now opening up to accessing newer technology and harnessing these technological advances in defence manufacturing. Prior to this, foreign companies could only own a maximum of 49 percent equity in defence manufacturing units. According to a government statement \u201cForeign investment beyond 49 percent has now been permitted through government approval route, in cases resulting in access to modern technology in the country or for other reasons to be recorded\u201d. \u00a0The 100 percent FDI limit for the defence sector is now also applicable to manufacturing of small arms and ammunition.<\/p>\n

Implications of Defence Liberalization<\/b><\/p>\n

The NaMo government\u2019s initiatives to open up the country\u2019s economy, to make India one of the top destinations for foreign investment, to increase the ease of doing business in India have made the country one of 2015\u2019s top 10 FDI destinations (according to the United Nations Council for Trade and Development). FDI has more than doubled since Narendra Modi took over as the Prime Minister.<\/p>\n

This new wave of liberalization in defence means that the foreign OEMs (original equipment manufacturers) who needed to form partnerships with Indian firms to enter domestic markets will now be able to operate independently. While this is certain to increase ease of business for the OEMs who can cut short the time spent on negotiations and partnerships, it will also increase the competition for Indian businesses.<\/p>\n

This is also likely to bring in a number of advantages. It will ensure that the Indian defence forces have a number of Indian and international options to choose from in terms of procurement. It will ensure that state-of-art-technology is easily available. This will also boost the manufacturing sector in the country and ensure fund flow into building up research and development capabilities.<\/p>\n

Reasons to Rethink<\/b><\/p>\n

While inviting FDI into the country\u2019s various sectors may be great for growth and development, and will certainly provide a big boost to employment opportunities in the country, opening up the defence manufacturing sector to 100 percent FDI is a decision that needs a rethink. It has\u00a0attracted much criticism and with a good reason.<\/p>\n