Experts have voiced concerns over the government’s move to allow more foreign investment in defence stating that more clarity is needed while allowing higher FDI (foreign direct investment).
The government, on Tuesday, announced FDI cap in defence at 26 per cent, even while stating that higher foreign investment in ‘state-of-the-art’ technology manufacturing will be considered by the Cabinet Committee on Security (CCS) on a case-to-case basis.
“It’s a step forward but not a leap. There are grey areas. There needs to be clarity on what state-of-the-art means. Who will define what is modern and cutting edge and what is not. There is possibility of subjectivity in the policy,” Dhiraj Mathur, Executive Director at PwC, said.
Similarly, Amber Dubey, Partner and Head-Aerospace and Defence at KPMG, said, “Investors need a clear policy framework, which allows a foreign investor to assess his eligibility sitting in his board room and not something that is left to the interpretation of the honourable members of the CCS.”
Confederation of Indian Industry (CII) stressed that FDI beyond 26 per cent should be allowed only with adequate checks and balances. It stated that while concepts such as ‘state-of-the-art’ technology would need to be defined, control should be retained with the Indian joint venture partner. However, Mr. Dubey added, “No global major who has spent decades of research and billions of dollars to develop core technologies is likely to pass that on to Indian JV partners in return for 26 per cent stake, in a sector where there is no assurance of the next big order.”
Rahul Gangal, Principal at consulting firm Roland Berger Strategy Consultants, said that while the industry was in favour of a 49 per cent FDI limit, with this move “at least there is room for discussion now. Is this enough to re-kindle OEM interest in India, is open to question still.”
On the other hand, the move to hike FDI in the insurance sector to 49 per cent from 26 per cent (pending Parliament approval) has been widely welcomed.
“The approval to raise FDI in insurance to 49 per cent from 26 per cent will help insurance companies which are in need of capital. Raising the limit in the sector will allow many of the foreign partners to bring in money and help with capitalisation requirements. This is a much-awaited reform and implementation may see an immediate inflow of FDI into the sector. This could go some way in bridging the CAD,” Naina Lal Kidwai, President of Federation of Indian Chambers of Commerce and Industry, said.
Dev Raj Singh, Executive Director-Tax & Regulatory Services, EY, said the enhancement of FDI limit in the insurance sector was only reiteration of the intention of the government as proposed in the Insurance Bill, 2008. “This change would require legislative backing before any foreign investment as per the new limits is made in this sector,” he added.
Further, CII said the move would unshackle insurance industry and drive orderly growth and long-term development of the insurance and pension sectors in India.