India May Allow More Foreign Investment in Defense
NEW DELHI - India may further open its defense sector to investment from overseas firms by increasing the legal limit of Foreign Direct Investment (FDI) from the current level of 26 percent to 49 percent. The change is suggested in the annual Economic Survey of the Indian government, presented July 2 to the Indian Parliament.
The Economic Survey 2008-09, which is an economic report card for the period of 2008-09, was presented to the Parliament by Finance Minister Pranab Mukjerjee. The survey also noted that foreign equity in defense production should be raised to 100 percent for high-technology defense equipment.
While the suggestion in the Economic Survey is not law, Defence Ministry officials said the increase in the FDI limit has been favored by Indian defense planners, adding that the government is likely to issue a notification to this effect this year.
India opened up its defense sector in 2001 to private participation for the first time, setting an FDI limit of 26 percent. However, though a number of overseas defense companies have tied up joint ventures with Indian private and state-owned companies, no major production centers have emerged as had been expected, the Defence Ministry officials said.
India's defense offset market is targeted at about $10 billion in the next five to seven years, but no major capacities are building up in the private sector, which some attribute to the FDI limit to 26 percent.
An executive of defense major Larsen and Toubro said no major joint ventures are coming up, and only memorandums of understanding are being signed between Indian and foreign firms. The executive advocated raising the FDI limit from 26 percent to 49 percent, and providing concessions to private sector defense companies to allow them to compete on a level playing field with the state-owned defense companies.
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