DIPP proposes 100% FDI in defence sector

In a bid to send a strong signal to global community, the Narendra Modi government, within two days of taking charge, has begun work on allowing up to 100% foreign investment in defense production. The proposal to raise FDI cap in defense from 26% to 100% is aimed at boosting manufacturing activities, which at the moment is the top priority of the new government for which Department of Industrial Policy & Promotion (DIPP) is working overtime. The department has proposed three different caps for FDI in defence- 49%, 75% and 100% -in order to incentivize technology transfer. It has proposed allowing 49% FDI in case of no technology transfer and 74% where there is a technology transfer and no cap policy only for cases which bring in state-of-the-art technology. Further, in the first and the most significant move by the government to revive manufacturing sector, the draft note stating the same has been circulated for ministerial comments. Permitting FDI in the sector will hugely help in reducing import bill for defence equipment and will help in boosting manufacturing and creating jobs. Presently, only 26% FDI is allowed in defence manufacturing, though the government can approve for more on a case-to-case basis. Back in May 2010, DIPP had rolled out a discussion paper suggesting increase in FDI cap for the defence sector, however it limited foreign participation to 26% in this capital-intensive and sensitive sector.