CCS to decide FDI proposals beyond 26 percent in defence

The government said Tuesday FDI in defence production beyond the existing 26 percent cap would be on a case-to-case basis after approval of the Cabinet Committee on Security (CCS) if state-of-the-art technology is involved.

Commerce Minister Anand Sharma told reporters here that existing sectoral cap for foreign direct investment (FDI) was 26 percent but 100 percent investment was permitted by the Indian private sector.

He said any proposal beyond 26 percent FDI will be recommended to the CCS when it involved state-of-art technology.

"In defence production, 26 percent through FIPB (foreign investment promotion board) route stays. For state-of-art technologies, FDI beyond this to be approved through CCS," Sharma said.

"Proposals beyond 26 percent where the project brings state-of-the-art technology, the decision rests with CCS. Only those proposals will be recommended (to CCS) where state- of-the-art technology is involved," he added.

Sharma said the decisions concerning FDI will be taken to the cabinet.

Reacting to the decision, FICCI president Naina Lal Kidwai said there was no change in sectoral cap on FDI in defence but the move to give clearance on case-to-case basis was significant.

She said that the industry will wait to see how the decision is implemented.

"Defence is a very important sector for investment," she told IANS.

The government move is in line with the stance of Defence Minister A.K. Antony, who had opposed the move to raise the FDI in defence manufacturing from 26 percent to 49 percent but had said that permission for the FDI beyond 26 percent can be given on a case-to-case basis if it would lead to access to modern technology. He had said that such clearance can be given by the cabinet committee on security.

Antony had opposed the suggestions to raise the FDIin defence production to 49 percent, saying that it will affect the domestic industry's growth.

Antony had written to Sharma stating that his ministry was of the view that FDI in the defence manufacturing sector should stay at 26 percent.

Antony, who has consistently pitched for the growth of the domestic defence industry, had said that allowing foreign companies to set up manufacturing facilities will hamper growth of indigenous research and design development.

Antony also stated that the FDI cap should not be raised as the country cannot be dependent on foreign companies or policies of countries of their origin in the defence sector on a long-term basis.

A committee headed by Economic Affairs Secretary Arvind Mayaram had recommended that the FDI limit be raised to 49 percent in several sectors through the automatic route.

The committee had suggested that the FDI in defence be raised to 49 percent under the government approval route.

Sources said that commerce ministry had also proposed hiking the FDI in defence.