After the Foreign Investment Promotion Board (FIPB) rejected the proposed defence tie-up between Larsen and Toubro (L&T) and Franco-German aerospace major EADS last week, the companies are discussing a revised proposal, with a new joint venture structure in which the European defence giant would hold 26 per cent stake.
FIPB’s rejection was because the proposal wasn’t adhering to the 26 per cent upper limit prescribed for foreign direct investment in companies in the defence sector, said government sources.
“We have a few more days left to appeal to FIPB on the order. As of now, it is not clear on what grounds they rejected the proposal. We had framed the joint venture as per the policy guidelines and press notes. If some changes are required in the JV’s equity structure, the companies will rework the proposal,” said a company executive on condition of anonymity.
Sources said a re-worked proposal would be sent to FIPB with a revised equity holding in the JV. When asked, an L&T spokesperson declined comment.
EADS and L&T, India’s biggest private defence contractor, had planned a JV to supply electronic warfare systems, avionics and radars. India has a five-year military procurement budget of $30 billion as it replaces its Soviet-era equipment, and foreign defence contractors are keen to tap the market.
Other foreign defence contractors have hit similar problems in the past. The UK’s BAE Systems tested the restrictions in October, when it applied for a JV with Mahindra & Mahindra, the Indian carmaker, to supply armoured vehicles. BAE was looking to take a 49 per cent stake. That proposal was rejected and the FIPB last week approved a revised split of 26 per cent for BAE and 74 per cent for Mahindra.