India is considering increasing the foreign direct investment (FDI) limit in its defense sector to at least 49% from the current 26%, according to a top government official.
“I am in favor of raising [the] FDI limit in the defense sector to at least 49%, if not 74%,” Federal Trade Minister Anand Sharma says.
The policy change is needed to help India “become a major defense producer” in the world, he says. “India needs to move on. Our industry is talking to major defense manufacturers in the U.S. and Europe.”
India opened up its defense equipment industry to the private sector in 2001, but limited foreign participation to 26%.
India is one of the largest defense importers in the world with few exports. India currently imports more than $8 billion in defense equipment. Its defense budget has swelled more than 10% over the last decade.
The defense allocation for the country’s fiscal year that began April 1 has been increased by around 5% to 2.03 trillion rupees ($38 billion) from the originally allocated 1.93 trillion rupees for the previous year that ended March 31. Of the total outlay of 2.03 trillion, 867.41 billion rupees will be spent on new defense equipment.
Sharma says India needs to take a series of measures to “promote both indigenous and collaborative ventures with defense manufacturers” around the world and reduce dependence on defense imports.
“I have been a votary of Indian industry’s full participation in the defense sector. Twenty-six percent has been low. I will continue to strive for higher FDI in defense so that we bring in defense technology for manufacturing in India,” he says.
Under his guidance, the Department of Industrial Policy and Promotion in a May 2010 discussion paper urged increasing the cap on FDI in defense to 50%, if not 100%, to gain access to state-of-the-art technology.