Govt discusses lifting foreign defence investment

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The trade ministry has suggested almost tripling the foreign direct investment cap on defence equipment to 74 percent, a major policy change that would crowd many local companies out of the lucrative sector.The cap is currently set at 26 percent. India has the world's 10th largest defence budget but imports 70 percent of its needs because state-run units cannot build advanced weapons systems.Defence officials have said there were no immediate plans to raise the foreign direct investment (FDI) cap for fear of leaving local companies unable to compete in a market worth $100 billion over the next 10 years.That market has attracted major foreign players including Boeing and Lockheed Martin from the United States.India, Asia's third-largest economy, wants to upgrade its largely Soviet-era arsenal in line with its economic rise and growing diplomatic clout. Efforts to modernise have been hit by long delays, cost overruns and red tape.The trade ministry issued the 74 percent proposal in a discussion paper which it said did not reflect the views of the government."The (foreign) established players in the defence industry should be encouraged to set up manufacturing facilities and integration of systems in India with FDI up to 74 percent under the government route," the note circulated among government ministries said.State-run Defence Research and Development Organisation (DRDO) has repeatedly come under fire over long delays on big defence projects such as battle tanks, light combat aircraft and artillery."The (DRDO) has not kept pace with the requirements of present day warfare," the paper said. "Manufacturing within the country, through foreign capital, with full transfer of state-of-the-art technology will be a better option."India is seeking 126 multi-role jet fighters, heavy-lift helicopters, submarines, ships and artillery for its army, all in deals that are part of a $100 billion budgetary provision over the next 10 years, Indian officials say.A defence spokesman said a final decision on FDI would be made after views from various ministries were heard.(Editing by Matthias Williams and Paul Tait)
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