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Our View: Expand Foreign Investment Limit

Sep. 9, 2012 - 01:15PM   |  
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At long last, India is making it easier for foreign defense contractors to partner with Indian companies to fulfill its stringent industrial offset requirements.

As of Aug. 1, foreign firms can now “bank” offset credits for up to seven years instead of just two, and firms have two years after the completion of a contract to satisfy obligations.

Offsets are forms of industrial compensation in exchange for defense purchases. Under Indian law, at least 30 percent to 50 percent of the total of all deals valued at more than $65 million must be in the form of offsets returned to India to help bolster its nascent defense industry.

This welcome move must be followed by another: India must raise legal limits on foreign direct investment in domestic industry from 26 percent to 49 percent or more. The change is essential to attract foreign investment and create viable, robust joint venture firms. Without it, the risks are too high and rewards too small to make it worthwhile to most foreign companies.

New Delhi is considering making that change, and should expedite the process. The sooner the change is made, the sooner foreign defense firms eager to do business with India will invest in the industry there.

Only by allowing greater international investment in defense will India access the technologies it needs to modernize its armed forces and create the industrial capacities needed to sustain a world-class military.

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