The Indian government recently announced the “radical liberalisation” of the Foreign Direct Investment (FDI) regime by easing norms for a host of important sectors including defence, civil aviation and pharmaceuticals, opening them up for complete foreign ownership.
In defence, foreign investment has been increased beyond the current 49% to 100% through the government approval route, in cases resulting in access to modern technology in the country.
This means that the government will consider and allow cases which brought “modern technology” to India’s defence sector. This would boost ‘Make in India’ like making manufacturing fighter planes in India possible.
FDI limit for defence sector has also been made applicable to manufacturing of small arms and ammunitions covered under Arms Act 1959.
Here is how the 100% FDI will benefit the Indian defence sector:
- This decision will bring in real investments provided the defence ministry also speeds up the procurement process.
- It also focuses to build a credible military-industrial zone in the country where the country can emerge as an exporter of military hardware. Technology can be sold to other nations resulting in foreign exchange!
- Though India has allowed 26% FDI in defence sector since 2001, it failed to woo foreign investment and hassle free defence technology transfer. Allowing 100% FDI will give a significant jolt to the turtle-paced defence manufacturing sector.
- Defence OEMs (Original Equipment Manufacturers) of India can now focus on actual research, design and manufacturing rather than wasting time on legal and regulatory issues.
- 100% FDI will boost foreign manufacturer to set up a plant here in India as well as facilitate the transfer of critical technology to India. It will create millions of job which will boost the ailing economy of India.
- India could become a global aerospace and defence hub instead of just being a supplier of parts and assembler of imported kits, provided the government eases defence procurement policies.
However, the 100% FDI in defence has its own dark side:
- Opening 100% investment to foreign countries means failure of local players like DRDO in being self-reliant at producing technology.
- Most of the countries like the USA are certainly not going to share its most advance technology with India if it plans to invest here.
- Since the private investors only work for profit, they will have least interest in manufacturing quality arms for the forces as long as they continue to make a profit.
- It will not be restricted to India itself. Say, if Pakistan also opens up 100% FDI, the same company could manufacture arms in both the countries at the same time. It would be highly beneficial for the private investor to sell arms to both the sides. Secrecy aur national security ki to waat lag gayi na.
- Lastly, it’s only going to make the country more reliant on foreign players.
