FDI limit in defence sector should be raised to 51 pc: Study

A minimum of 51 per cent FDI must be allowed in defence sector without any conditions so that global players can exercise adequate control over joint ventures, and more jobs are created, a study has suggested.

"The government should allow a minimum of 51 per cent FDI in defence sector without any riders to linkages with modern technology,' so as to enable international defence companies to exercise adequate control over JVs, intellectual property rights and product quality," a joint report by Assocham and global advisory services firm BDO said.

The study pointed that the increase in FDI limit will bring in capital for establishing new facilities and scaling up the current ones while benefiting India through large scale job creation.

It said the government must restore and strengthen tax incentives for R&D activities to encourage investments in technological innovations by MSMEs.

"This will encourage foreign defence companies to bring best practices and technology to create domestic R&D partners and contribute towards a robust aerospace ecosystem," it further said.

Assocham said the current FDI policy for defence sector allows up to 49 per cent of foreign equity in an Indian defence company under automatic route.

Any foreign equity above 49 per cent is evaluated on case-by-case basis and permitted only if a modern technology is being transferred into Indian company.

The study also said development and transfer of high-end technology is crucial to boost aerospace manufacturing ecosystem.

It further said given the industry is extremely capital-intensive, steps towards creating infrastructure and policy environment would propel growth of small and medium enterprises.