Jun 20, 2020


What is the status of the FDI in Defense sector?

Department for Promotion of Industry and Internal Trade has allowed FDI under automatic route up to 49% and above 49% through government route wherever it is likely to result in access to modern technology or for other reasons to be recorded.

What are problems with current defence FDI policy?

  1. In the defence sector, any foreign investor proposing to set up a manufacturing base here requires a licence and a procurement order from the government. Clearance for the licence is needed from both the defence ministry and DPIIT. 
  2. This makes duplication of work and experts believe it can be subsumed into one. For the ease of doing business, the FDI approval process can also be subsumed in the licensing process. Another layer for a separate FDI approval process can be done away with
  3. With regard to the offset policy, changes such as allowing a group company’s offsets also as part of the company placing the order could be considered. Under the defence offset policy, the foreign supplier has to source or purchase at least 30% of the contract value locally.
  4. The government may also ease the export policy for foreign defence manufacturers looking to set up base here. Some conditions specified in the licence may be relaxed like allowing exports to other countries, barring enemy nations.

What is the significance of the FDI in the defence sector?

  1. By allowing higher FDI  in the Defence sector, the global companies having high-end technologies can be encouraged to set up their manufacturing base in India in collaboration with Indian companies, thereby resulting in the creation of employment opportunities, saving of foreign exchange and increasing indigenization.  
  2. FDI is one of the sources available for the industry to access some of the technologies required to indigenously design, develop and produce the equipment, weapon systems/platforms required for defence. 
  3. India was the largest importer of arms from 2012 to 2016, showed data released by Stockholm International Peace Research Institute (SIPRI) last year.