India called for relaxing FDI cap in defence sector

Asserting that the 26% FDI cap acts as a disincentive for foreign companies to invest in India's crucial defence sector, an Indian defence expert has called for increasing the investment limit.

Increase in FDI in the defence sector becomes all the more important as India and the US are working to boost their defence ties and co-development under the Defence Trade Initiative (DTI), said Vivek Lall, Chairman of the Indo-US Strategic Dialogue by the Indo-American Chamber of Commerce.

"All this can be achieved by India relaxing the 26% limit on FDI in the defence sector: a regulation that is widely attributed to have de-incentivized foreign companies' moves to invest in the Indian defence sector and transfer advanced technologies to it," said Lall.

Lall, who recently held high discussions in Manama with the US Defence Secretary, Chuck Hagel on India-US strategic dialogue and policy issues especially pertaining to defence sector, said more strategic collaboration between India and US is inevitable.

The United States, he said, needs to regard the defence industrial capability gap between itself and India as an opportunity for collaboration rather than an obstacle.

"There is no doubt that the US industry is the most advanced; likewise, there is no doubt that the most advanced technologies and products will have the greatest application in the Indian subcontinent. The gap between these two has to merge in order to meet Indian requirements," Lall told PTI.

"India has reiterated that defence trade relations with the US must move from purely a buyer/seller relationship to a more comprehensive partnership covering the transfer of technology and co-production.

"Through such collaboration India has a major opportunity to build an industrial infrastructure that will be able to quantitatively, technologically, and qualitatively support the requirements of the Indian armed forces," he said referring to his recent conversation with the US Defence Secretary.

The US, he argued, is destined to significantly expand its presence in the Indian Air and Defence (A&D) sector over the coming decade.

US-based companies have been looking to work more closely with India in the A&D sector, he said.

"Key segments include: the production of aircraft and related components; air traffic management; maintenance, repair and overhaul; aviation safety; security; and capacity building," Lall said, adding he expect to see a significant US industry presence in India by 2023.