FDI in defence production, seen as the last frontier in investment reforms, is an initiative where no movement has happened. This is because the number two in the UPA cabinet, defence minister AK Antony, has issues with the proposal.
Antony's opposition comes in spite of his concerns being addressed in detail by the commerce and the finance ministries. Yet, the proposal is stuck in a bureacratic mess, back and forth between South block and Udyog Bhawan, reports CNBC-TV18's Shereen Bhan.
Also read: Slowdown temporary, India will revert to high growth: PMThe defence ministry is yet to come on board on the long pending proposal of hiking the FDI cap in defence production from the current level of 26 percent. Department of Industrial Policy and Production (DIPP) had mooted a calibrated increase in the FDI cap for the sector - 49 percent in the first phase and 76 percent in the second accompanied by several safeguards. The draft plan has evoked some interest overseas. Britain and France have expressed interest in investing in Indian JVs, but the Antony-led ministry is yet to yield. Defence production officials have cited several issues, these include the fear that greater foreign participation in the sector would hurt public sector firms, a contention dismissed by the DIPP, the other major concern is on ownership and control.South block believes that domestic companies with FDI will be influenced by their foreign partners and India could become dependent on a single nation for its arms' requirement. To this, the DIPP maintains that issues of control can be handled through a stricter definition .The defence ministry also fears that technology and source codes will be passed on to enemy nations by companies with FDI. DIPP maintains that technology is already being passed to enemy nations by even existing overseas suppliers, and India could exercise better control over weapon manufacturers with Indian investments and facilities. Moreover, India can always enforce a 'negative list' of countries to which arms exports from India would be banned. Lastly, the defence ministry is concerned about internal security implications due to FDI-funded joint ventures. The DIPP has proposed a strong surveillance mechanism, especially for small arms manufacturers.
Given the state of politics and the possibility of early elections, it remains to be seen if the government can move on this final frontier in foreign direct investment. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
