The decision to allow 100 per cent FDI in Defence sector will give a push to ‘Make in India’ and make the country a hub for Defence production, officials said on Monday. Earlier, the FDI limit was 49 per cent and the industry including foreign weapon manufacturers were repeatedly urging for raising the limit to bring in latest technology besides capital.
While the Government on Monday removed the clause of access to state of art technology for investing more than 49 per cent, officials said the 100 per cent FDI route will be on case to case basis given national security implications related with defence industry.
Explaining the significance of hiking the FDI limit, they said defence industry is capital intensive besides technology driven. At present, the Indian defence industry is in a nascent stage and needs high-end technology and funds to produce world class weapons. While the Government has allowed 100 per cent FDI, sources said the foreign vendors are likely to go for 74 per cent ownership and tie-up with an Indian partner as the foreign manufacturer has to operate in Indian conditions.
Giving an example of sophistication and complexities involved in manufacturing weapons, they said even the nuts and bolts let alone electornic warfare systems and others need very high degree of expertise. India lacks skilled workforce for such ventures and setting up industry here with foreign capital will enable the local engineers and others to train on most modern machines. Moreover, the Indian professionals will also be exposed best international practices of manufacturing weapon systems as deployed by foreign companies in their countries.
Moreover, the decision has opened the doors for foreign vendors to transfer technology to India while setting up factories here thereby generating employment across the entire spectrum ranging from low skilled to high-skilled force. Incidentally, the 100 per cent FDI limit will be compatible and in conjunction with Defence Procurement Policy (DPP) to ensure level playing field for all the stake-holders, they said.
The nature of warfare has changed drastically in the last 20 years with more stress on Information Technology and space based communication systems. Accordingly, warships, fighter planes, tanks and realted weapon platforms are guided by IT and statellite systems so that they are capable of fighting 24x7.
India has started inducting weapon platforms dependent of IT and space based communication systems and therefore needs defence industry here to procure these systems. Setting up of foreign companeis with this know how will help the armed forces to buy these sytems at relatively lower prices and the local industry will get hold of the know how to manufacture cutting edge technology, they said.
Meanwhile, in another important decision, the government opened the manufacturing of small arms like pistols, rifles and guns as defined in the Arms Act 1959 to the private sector. At present, ordnance factories are the sole producers of these weapons.
Several foreign companies over the years have shown interest in setting up factories here to manufacture small arms but the rules did not permit it. The latest decision will allow even the medium scale entrepreneurs to set up factories in partnership with foreign vendors under the 74-26 per cent clause. Giving an example, they said even some East European countries besides Russia manufacturing AK-47 rifle may set up factories here either on their own or in partnership. Similarly, Israeli made Uzi submachine gun used by Indian commandoes by forces all over the world may also be manufactured here.