Raise FDI cap in defence to 49%: Assocham

Industry body Assocham has asked the government to raise the foreign direct investment (FDI) cap in the defence sector to 49 per cent for enabling indigenisation and the transfer of latest technology.

At present, 26 per cent FDI is permitted in the sector. "This needs to be accelerated to 49 per cent so that defence indigenisation speeds up with latest technological transfer to the domestic defence sector," Assocham said.

India's arms imports since the 1999 Kargil conflict have been worth $25 billion and would further rise to $30 billion by 2012. It is, therefore, necessary to move towards self-reliance in defence production, Assocham Secretary General D S Rawat said.

India is the world's largest importer of defence equipment -- over $6 billion, it said.

As India has a large industrial base, offsets (as introduced in the 2006 and 2008 defence procurement procedure of the government) will further develop its technical and manufacturing potential and help increase investments in domestic research and development, it added.

"Defence Offsets Policy (DOP) is expected to bring in $10 billion during the 11th Five-Year Plan period, as every foreign company is required to spend 30 per cent of the value (of exports) on offsets goods or services purchased from Indian defence companies," the chamber said.

Offsets policy is expected to create market-entry opportunities for private companies, and generate investment in research and development and manufacturing defence goods, it said.

Under DOP, a single-window clearance wing called the Defence Offset Facilitation Agency assists potential vendors in interacting with the Indian defence industry for identifying potential offsets products and projects.