India notifies higher foreign equity cap in defence

India Tuesday notified the hike in foreign equity cap in the defence production industry from 26 percent to 49 percent, with what in official terminology is called a Press Note.

The note said the entity with such foreign equity must be owned and controlled by Indians. All types of equity -- from foreign funds, companies and non-residents -- will have to be within 49 percent.

The note from the department of industrial policy and promotion further clarified that foreign investment proposal above 49 percent will have to get the nod of the Cabinet Committee on Security.

A favourable decision will depend upon whether such venture was likely to fetch the country access to modern and state-of-the-art technology, the notification added.

A meeting of the cabinet, presided over by Prime Minister Narendra Modi, had Aug 6 decided to hike the cap in the defence sector in a move that can help India curb its import bill on military hardware.

India sources 70-75 percent of such hardware from abroad and Finance Minister Arun Jaitley, in his budget speech, had said the government was committed to allowing higher foreign equity in the sector.

"India today is the largest buyer of defence equipment in the world. Our domestic manufacturing capabilities are still at a nascent stage," Jaitley had said in his maiden budget speech.

"We are buying a substantial part of our requirements directly from foreign players, companies controlled by foreign governments and foreign private parties are supplying our defence requirements to us at a considerable outflow of foreign exchange."