FDI in the India defense sector

FDI in the India defense sector
Nksagar: New Delhi- May 18,2010:FDI to be subject to licensing provision. India at present, 26 per cent FDI is allowed in defence sector.There is move to enhance the provision to rope in more technology and state of art and to achieve this target it is appropriate to extend the limit of Foreign investment in this sector.

The Industry Ministry, which proposed 74 per cent FDI in the defence sector, has said even 100 per cent foreign investment would be "desirable" for the country to have latest technology for armed forces."In case if we really want to have the state of art technology, we have to permit anything above 50 per cent if not 100 per cent.
It may be therefore, desirable to allow either 100 per cent or 74 per cent (FDI) as in the telecom sector," the discussion paper of the Department of Industrial Policy and Promotion (DIPP) on the issue has said.

The DIPP allayed concerns that the national security could be compromised by removing the ceiling on the FDI in the sensitive sector.
In any case, FDI would be subject to licensing provision. At present, 26 per cent FDI is allowed in defence sector."Since there is licensing provision in the defence sector we can refuse to permit FDI in the sector by refusing the licence where the background of the company is suspected," the paper said.
Besides, the security concern can be met by imposing a condition that "the government has a right to expropriate a manufacturing facility in case there is need to do so due to the exigencies of national security, by payment of suitable compensation".

Experts, however, have cautioned against the proposal."Allowing 74 per cent FDI looks desirable in the non-strategic sector, the (Industry) Ministry will have to be cautious while allowing it in the strategic sector as foreign players will have control over these companies," Observer Research Foundation (ORF) Senior Research Fellow and Defence Analyst Deba Mohanty said.

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