FDI up to 74% can make Indian defence self-reliable: Study

 The Dollar Business Bureau The Government of India (GoI), needs to raise cap on Foreign Direct Investment (FDI) in order to achieve self-reliance in the defence sector. This was stated by the study titled ‘Self-reliance in defence production: The unfinished agenda,’ jointly done by the Associated Chamber of Commerce and Industry of India (ASSOCHAM) and PricewaterhouseCoopers (PwC), a global advisory firm. The ASSOCHAM-PwC joint study says that the recent increase of FDI cap in defence to 49% may not succeed fully in drawing investments and advanced technology into the sector. In this regard, the study suggests ‘allowing 100% FDI in defence sector, if not, at least 74%, in order to facilitate the ways for capital inflows and setting up of entities of Original Equipment Manufacturers (OEM) and their suppliers with technology transfer’. The defence sector holds immense possibilities in attracting investments, setting up manufacturing facilities, obtaining technologies and generating high-skilled employment, the study added. The study further called upon the government policies to create synergies rather than contradictions, in order to leverage India’s combined potential in having liberalized offset policy, low-cost manufacturing and skilled man-power, as a part of its defence acquisition programme. The increase in FDI limit will also help in facilitating the better fulfillment of offset obligations, which arise in case a country demands offset agreements in order to gain economic benefits. Providing the multiplier (say of five) for FDI in the offset policy will help the OEMs to bring investments into the country, the study added. Releasing the study findings, S D Rawat, Secretary General, ASSOCHAM, said the defence production needs long-term and large investment, cutting-edge technology with low economies of scale. For this purpose, he suggested the Indian government to support building a private industry base with pro-active policies in funding & research, creating a low-interest regime to bring down capital costs, encouraging exports, among others. With large business houses entering the defence sector in an addition to the already level-playing MSMEs, there exists no lack of investment appetite within the private sector, says the study. However, the uncertainty in defence procurement, long gestation periods and lack of market assurance, among others, are concerning the private sector, which is focused on shareholder returns, added the study. Highlighting the shortage of skilled workforce being faced by the Indian defence sector, the study said the government should encourage the MSMEs, rationalize taxes and duties, build the capabilities of private industry, among others, in order to make the Indian defence sector self-reliable.  

This article was published on April 4, 2015.