Commerce Ministry to move Cabinet for hiking limit to 49 per cent
Backed by the strong endorsement from the Ministries of Finance and Home, the Commerce and Industry Ministry is preparing to move a Cabinet note on allowing 49 per cent Foreign Direct Investment (FDI) in defence sector.
Highly placed sources in the government said the government was keen on allowing increased participation of the private sector and established players in the defence sector and had asked the Defence Ministry to come up with a “final view'' on the issue soon.
Sources said Union Finance Minister Pranab Mukherjee, who recently held a meeting on the issue, strongly batted for enhancing the FDI limit from 26 per cent to 49 per cent. His view was backed by Home Minister P. Chidambaram and Commerce and Industry Minister Anand Sharma.
However, Defence Minister A.K. Antony, during the meeting, expressed reservations on further opening up of the sector.
Officials said Mr. Antony was asked by Mr. Mukherjee to hold consultations within his Ministry and come up with a firm view on the issue soon so that a final decision could be taken. However, officials in the Commerce Ministry said that the Ministry had already made up its mind to move a note for allowing 49 per cent FDI in defence sector.
The business chambers are also divided over the issue. During a recent interaction with the captains of the industry, FICCI president Rajan Bharti Mittal pitched for enhancing FDI in the defence sector while its Secretary-General Amit Mitra wanted status quo.
“We have received a representation from small scale industry sector from States such as Andhara Pradesh, Karnataka, Tamil Nadu and Maharashtra asking us to open up the FDI in the defence sector which will generate big business for them and also open up massive employment opportunities. It will also cut down the role of touts and middlemen in the defence deals, something which is being opposed by some lobbies within the country,'' a senior official said.
The Ministry of Commerce and Industry had allowed private industry into defence production in 2001, subject to government licensing and a 26 per cent FDI cap.
In the Defence Procurement Procedure of 2008, the Defence Ministry had permitted a 49 per cent FDI on a case-by-case basis.
The Economic Survey of 2010 had also suggested that 49 per cent FDI be allowed. The Department of Industrial Policy and Promotion (DIPP), under the Commerce Ministry, in a discussion paper floated last year, had favoured 100 per cent FDI in defence to attract foreign technology and position India as a global hub for defence production.