The government decision to liberalise conditions allowing 100 per cent FDI in the defence sector may result in at least some foreign entities setting up subsidiaries in India, said industry experts.
The government on Monday removed the condition of “state-of-the-art” technology for permitting 100 per cent FDI in the defence sector. The new condition is that the companies wanting to invest 100 per cent FDI and open a subsidiary needs to bring in only “modern” technology.
The new rule is 49 per cent FDI in defence under the automatic route. Foreign investment beyond that would be permitted through government approval route in cases resulting in “modern” technology. The FDI limit for the defence sector has been made applicable to manufacturing of small arms and ammunition covered under the Arms Act, 1959.
A senior Department of Industrial Policy and Promotion official said it had been getting proposals in the defence sector. “But everybody was troubled by the clause ‘state-of-art’. This was affecting the ease of doing business; therefore we have changed the terminology.”
“New policy will be a significant step forward in ensuring that OEM [original equipment manufacturer] subsidiary-driven manufacturing plans take off. It will result in greater comfort for OEMs to establish high-technology manufacturing-driven subsidiaries,” said Rahul Gangal, partner, Roland Berger.
