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Govt set to allow over 49% FDI in defence

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The government has got down to formalising norms for allowing over 49% foreign direct investment in defence production after French company DCNS proposed to set up a wholly owned Indian arm to develop advanced systems for submarines.
The department of defence has held a few round of consultations with other ministries with other ministries and also discussed the issue with stakeholders, said sources. There is a thinking within the government that it would be best not to have a fixed set of norms, and instead take a view on the merits of an individual case.
While the govern ment allowed 100% FDI in defence manufacturing, it was decided that overseas investment up to 49% would be allowed via the automatic route and a higher stake would be permitted on a case-to-case basis if a state-of-the-art product was being brought in with access to technology .
“So far, there were no guidelines on how to deal with cases where majority foreign ownership is proposed. We are trying to put in place a standard operating procedure,“ an officer said. The move comes ahead of next week's meeting of the Fore ign Investment Promotion Board, where DCNS's proposal is listed.The proposal can be deferred if there is no consensus on the guidelines or need to have a stringent set of rules that reduce flexibility.
DCNS is looking to bring Air Independent Propulsion (AIP) systems into the country , which are seen to provide more underwater endurance to conventional submarines. Earlier, news reports had sa id that the French firm plans to develop AIP equipment in partnership with Indian companies.
The Narendra Modi government is keen to rope in the private players and overseas investors in the hitherto closed sector. Even the defence ministry , which was earlier reluctant to allow private players and preferred to import equipment, often involving middlemen, is now amenable to the change.
Despite the massive interest in recent months, between 2000 and 2015, FDI inflow in the sector was estimated at $5 million (Rs 25 crore), just higher than that in the coir industry , data with the department of industrial policy and promotion showed. This indicated that projects haven't taken off and defence orders have not been forthcoming.
Times of India New Delhi,23 April 2016

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