The Associated Chambers of
Commerce and Industry of
India has reiterated its
demand for a higher FDI cap in
defence sector, from the current
level of 26 per cent to 49 per cent,
with necessary approvals from the
Department of Industrial Policy
and Promotion to help India create
a niche for original equipment
manufacturers and provide
increased employment opportunities
in the sector.
"The suggested move will allow
for a significant degree of control
by Indian government on FDI
inflows in defence and encourage
domestic industry to seek meaningful
foreign tie-ups through
which defence indigenisation can
grow to an intended level of 70 per
cent," ASSOCHAM said in a
statement.
In a paper presented to the Secretary,
Defence Production, on
Amendments in Defence Procurement
Policy 2008, ASSOCHAM
has argued that manufacturing of
defence equipment in India was
subject to a 26 per cent cap on FDI.
The association held that the
argument for raising FDI
stemmed from the understanding
that a 26 per cent cap on FDI discouraged
OEMs from bringing in
proprietary technology. Fallout of
low FDI cap was that this could
possibly result in limiting foreign
capital inflows into the sector and
thereby increase the corresponding
fund requirements of the
Indian partners.
The argument against raising
the FDI cap to more than 26 per
cent stemmed from the fear of
Indian companies ceding control
and thereby resulting in units
closing down in situations of operational
emergency and need by
the armed forces, leading to disruption
in supply chain,
ASSOCHAM said.
"
Therefore, the defence sector
needs to be opened up to the
extent of 49 per cent to ensure
that technology transfer happens
and domestic companies at
the same time have control over
defence manufacturing," the
association noted.
Further, ASSOCHAM pointed
out that India's massive defence
budget had the potential to make
it a global manufacturing and
services hub in the sector. "India
must seize this opportunity and
put in place a policy regime that
would facilitate investments (local
and foreign), transfer of technology,
and creation of jobs in India.
The SEZ policy provides an ideal
platform for this," it added.