USIBC wants FDI limit in defence hiked to 74%

Pitches for opening up of the e-commerce sector

February 21, 2013 07:01 pm | Updated 11:24 pm IST - NEW DELHI:

The U.S.-India Business Council (USIBC), representing top of the line U.S. companies, has pitched for hiking the foreign direct investment (FDI) in the defence sector from 26 per cent to 74 per cent to allow greater investment and transfer of technology by global companies.

Sources in the Commerce Ministry said the USIBC had submitted a wish-list to Finance Minister P. Chidambaram outlining its expectations from the general budget 2013. In a letter to the Finance Minister, accompanied with a memorandum, USIBC President Ron Somers has stated that U.S. and India share common goals in national security and technology. “USIBC strongly advocates upward revision of India’s FDI cap in the defence sector from the present 26 per cent to 74 per cent in order to allow for greater investment and transfer of technology by global defence companies, resulting in increased opportunities for co-production, joint manufacturing, and offset partnerships with Indian industry,’’ the memorandum states.

Mr. Somers, in the memorandum, has argued that increasing opportunities for commercial partnership in this industry would promote job creation as well as mutually benefit private and public sector enterprises within India. Moreover, the move would help modernise India’s military amid an increasingly unstable security environment.

Welcoming the revision of the Defence Offset Guidelines, which will allow foreign manufacturers to forge closer partnerships with a 16 broader range of Indian partners, Mr. Somers said to focus investment attention towards areas of critical need such as civil infrastructure and energy, the Indian government must carefully consider how these ancillary sectors could help bolster India’s indigenous defence manufacturing capability. “Expanding the definition of offsets to allow for investment in civil infrastructure will only help drive companies to further dedicate their offset commitments to areas that help build India’s defence industrial base. The government could choose, on a case-by-case basis, to allow for the retroactive application of revised offset guidelines to meet the requirements of contracts that fall under previous iterations of the Defence Procurement Policy,” it added.

Similarly, pitching for opening up of the e-commerce sector, the USIBC head said India should take steps to lift present restrictions in foreign direct sales to Indian consumers via e-commerce. Such an on-line approach to India’s retail market could benefit the country in several ways, it added. “Unrestricted e-commerce would give Indian consumers a wider variety of goods at lower prices, thus directly advancing the goal of inclusive growth. The online activity would dramatically lower the costs of government procurements, thus reducing the budget deficit, it would increase the productivity of Indian exports, which would narrow the trade deficit and e-commerce lowers the barriers to entry for small and medium-sized businesses that often lack the capital to create physical stores,’’ USIBC stated.

E-commerce promotes development of infrastructure because it creates the need for warehouses, customer fulfilment centres, systems for transportation and delivery, and a virtual network to support the process. Demand would certainly rise for IT and customer care specialists and skill sets where India has already achieved world-class status, it added.

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