FDI in Defence: Experts Choose to Wait and Watch

The expected announcement by the government to hike Foreign Direct Investment (FDI) limit to 49 per cent from 26 per cent in the defence sector has evoked a guarded response. Terming the move neither as a great boon for defence capability build up nor a calamity for indigenous design and production, Dr K G Narayanan, former Chief Advisor, Defence Research and Development Organisation (DRDO), said that even higher levels of FDI can be infused in unavoidable ‘Buy and Make option’ cases, with advantage and no great harm being done to the Indian economy, technological capabilities and national security. “But, the government should declare with sincerity and seriousness, that substantial self reliance will be achieved within a reasonably short period of 10 years as a national goal and also introduce effective implementation measures to achieve it. “In the absence of such a proclaimed national commitment and consequent changes in attitudes of the armed forces, defence production and defence research departments, it would be naive to expect restrictions on FDI ceiling to come to the aid of domestic technology agencies, public or private,” Dr Narayanan, said. He felt it is equally naive to expect high technology to flow into Indian industry simply because foreign firms can invest more and repatriate more profits. “There is a great difference between local manufacture of weapons containing high technology and manufacture of weapons containing high technology created or assimilated locally. These vastly different options are frequently, perhaps even deliberately, confused and taken to be same while arguing in favour of higher limits for FDI,” Dr Narayanan felt. Mr Ashok Kumar Baweja, Head of Quest Global Defence Engineering Services, welcomed the government’s move and hoped the provision to enhance the limit on a case to case basis to be in place. “Foreign companies were hesitant to invest. It is a very careful decision and once the policy is made it will be easy to make exceptions in a case to case basis. Let’s wait and see what happens,” said Mr Baweja, who was the former chairman of Hindustan Aeronautics Ltd. Saying that the increase in FDI limit would benefit Ministry of Micro, Small & Medium Enterprises, Col (Retd) H S Shankar, Chairman and Managing Director, Alpha Design Technologies Pvt Ltd, however wanted the FDI to come through the direct route and not via Foreign Investment Promotion Board (FIPB). “While the MSMEs are bound to gain from the move, the established big industries in India will be left with no choice but to compete with the global players now. “With respect to investments in plants, machinery and test equipment the Original Equipment Manufacturers can be made to share 49 per cent of the cost, instead of the earlier 26 per cent. This will help Indian industries,” said Col Shankar, who was the former Director (R&D) of Bharat Electronic Ltd, said.

Source: http://www.newindianexpress.com

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