The Government’s decision to allow 100 per cent FDI in Defence manufacturing will not impact Defence Procurement Policy (DPP)2016 and will not affect the local industry. Instead, inflow of funds will create more jobs and investment opportunities for Indian medium and small scale industries, Defence Ministry officials said on Tuesday.
Clearing the air on opening up the Defence sector in a big way to foreign players, announcement for which was made on Monday, the officials said, that as per DPP 2016, priority is accorded to Indian designed, developed and manufactured weapon systems. In fact, the 100 per cent FDI will help ‘Make in India’ policy gather momentum and ultimately make India a hub for Defence production, they said.
Elaborating upon this aspect, the officials said in case foreign investors want to tie up Indian industry under the 100 per cent and 74 per cent FDI categories, the vendor will have to include 60 per cent indigenous content for manufacturing the weapon system. This will ensure that the fledgling Indian industry gets hold of cutting edge technology and best international practices in this field.
Moreover, such weapon systems produced here, likely to be bought by the Indian armed forces, will also reduce the import cost, thereby cutting down the overall price of the finished product, they said. In case, the foreign investor wants to invest 100 per cent FDI, set up its own manufacturing base and does not want to source Indian product, they can do so and export the weapon system subject to No Objection Certificate(NOC) from the Government, officials said.
Highlighting the implications of allowing 100 per cent FDI, they said permission will be given on case to case basis given national security issues involved with Defence manufacturing.
Moreover, the opening up of the sector will especially help the medium and small scale entreprensurs as they will get access to international market through foreign investors.
Admitting the fact that the Indian industry lacks the required skilled manpower and knowledge of producing world-class Defence systems, given the complexities and high capital investment, officials said 100 per cent FDI will establish the required eco system for Defence manufacturing and generate jobs.
Giving the example of China, they said the eastern neighbour allows 100 per cent FDI and the investors take advantage of cheap labour and export the finished product, as China has its own well developed Defence industry and need not import.
However, in case of India, the local industry, including private and public, is lagging behind and therefore the Chinese model cannot be implemented here.