Experts term govt's relaxation in defence sector 'pragmatic'

Welcoming the reforms in foreign direct investment (FDI) in the defence sector, industry players on Monday hailed the revised measures as “pragmatic”.

In the sector, the government has tweaked the policy to allow 100 per cent FDI by doing away with the condition of access to “state-of-the-art” technology and modified to “modern or for other reasons”, a move that will widen the scope for investments.

The term ‘state-of-the-art’ is subjective and could have led to a political witch-hunt later. Most foreign companies were wary of using this provision to ask for higher FDI,  Amber Dubey, partner and head of aerospace and defence, KPMG India, said. “Easy terms like ‘modern technology’ and ‘other reasons’ will allow most leading defence companies to come in unhindered. All defence technologies are modern by their very nature. This decision will bring real investments, provided the defence ministry also speeds up the procurement process and issues big ticket orders. The avoidable controversies on ownership and control are now over,” Dubey added.

The earlier policy allowed FDI beyond 49 per cent under the approval route on a case-to-case basis, subject to the condition that it would result in access to ‘modern’ and ‘state-of-art’ technology in the country.

FDI limit for the defence sector has also been made applicable to the manufacturing of small arms and ammunition covered under the Arms Act, 1959.

“The amendment introduced by the government is very pragmatic because ‘state-of-the-art’ technology was not defined in the previous policy and conveyed a one-dimensional perspective on why a foreign OEM (Original Equipment Manufacturer) could require more equity stake,” said Pierre de Bausset, president, Airbus Group India, said.