New Delhi: In order to boost manufacturing and reduce import dependence, the government on Thursday proposed to raise the foreign investment limit to 49 percent in the defence sector.
While presenting the Budget 2014-15, Finance Minister Arun Jaitley said that India is the largest buyer of defence equipment in the world and the domestic manufacturing capacities are still at a nascent stage.
The country is buying substantial part of defence requirements directly from foreign players.
"Companies controlled by foreign governments and foreign private sector are supplying our defence requirements to us at a considerable outflow of foreign exchange.
"The composite cap of foreign exchange is being raised to 49 percent with full Indian management and control through the FIPB route," he said.
At present, India permits 26 percent FDI in the defence manufacturing. In April, the Commerce and Industry Ministry has said that companies engaged in the sector were not allowed to further increase foreign portfolio investment beyond August 2013 level.
In April, the Ministry had said that "FPI/FII (through portfolio investment) in companies holding defence licence as on 22 August, 2013 will remain capped at the level existing as on the said date. No fresh FPI/FII is permitted even if the level of such investment falls below the capped level subsequently".
During 2001 and August 2013, 49 percent foreign investment (26 percent FDI + 23 percent FII) was allowed in this sensitive sector.
During this time, India has attracted only USD 5 million investments.
India opened up the defence equipment industry to private sector in May 2001.
India ranks among the top ten countries in the world in terms of military expenditure. India at present imports over USD 8 billion worth of defence equipment.
On this move, former Union Minister Anand Sharma said that the announcement of 49 percent cap with substantial Indian control will not enthuse any major foreign investor to invest in the country.
"This sector held the potential of catalysing and reviving the growth of manufacturing and in absence of a bold announcement, it is a missed opportunity," Sharma added.
