Sharma favours raising FDI cap in defence, insurance sectors

Commerce and Industry Minister Anand Sharma today "strongly" favoured raising foreign direct investment (FDI) ceiling in the defence sector so as to boost manufacturing locally.

Announcing the annual supplement of the Foreign Trade policy, Sharma also made a case for increasing the FDI cap in insurance from 26% to 49%, a bill for which is pending in the Rajya Sabha since 2008.

"We will be looking at other sectors in particular to give a thrust to advance manufacturing. We have strongly favoured increase in FDI cap in the defence production so that we increase defence manufacturing in India. These are under active consideration because these are sensitive decisions which will require inter-ministerial reflection," he said.

Currently, only 26% FDI is permitted in the defence production, which the Department of Industrial Policy and Promotion (DIPP) is proposing to raise to 49%.

The DIPP, under Sharma's charge, in a May 2010 discussion paper had said that for the country to have state-of-the-art technology, "we have to permit anything above 50%, if not 100%". It had even said that 100% FDI would be desirable.

India opened up the defence equipment industry to private sector in May 2001.

The country is one of the largest defence importers in the world with a minuscule component of exports. It imports over USD 8 billion worth of defence equipment, and the expenditure is increasing at an average of 13.4% annually since 2006-07.

The defence budget for the current fiscal is Rs 2.03 lakh crore, up 14% over the revised estimate of 1.78 lakh crore for 2012-13.