Soon after Union Finance Minister Arun Jaitley lifted the limit for foreign direct investment (FDI) in the defence sector from 26 to 49 per cent on Thursday, ostensibly to raise local manufacture of defence products and reduce their import to below 70 per cent, key domestic and foreign players in the domain doubted that multinationals with key technologies would now be really enthused to bring in their big bucks.
Chris Rao, vice-president of Bangalore-based subsidiary of U.S. defence and aerospace major UTC Aerospace Systems, said increasing the FDI limit was a right move but a very small one.
“It is not enough to attract MNCs. A little beyond 50 per cent would have kick-started new investment opportunities.”
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Consulting firm PwC India’s Dhiraj Mathur said, “Ultimately, this does not make any material change and may not be enough incentive for foreign firms to bring in investments and proprietary technology.”
S.K. Sharma, Chairman and Managing Director of Bharat Electronics Ltd., which provides radars, missile and communication systems to the military, said 49 per cent FDI alone would not drastically pull in investors or perk up local production. “It will compel serious foreign companies with long- term interests [in India] to come in even at 49 per cent,” he told The Hindu.
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BEL and other defence public sector undertakings had their own indigenisation and R&D programmes in missiles, weapons and aircraft programmes.
MNCs would be needed for a few critical technology transfers, said Mr. Sharma, whose company had encountered the FDI hill while scouting for partners with modern radar and missile seeker technologies.
Even if a much higher FDI were offered, Mr. Sharma reasoned, “No foreign company will offer us latest technologies as their governments have reservations about it.”
The impact of the FDI cap and other moves, he said, should be seen in the next three to four years, when imports might fall to around 50 per cent.
Boost productionR.K. Tyagi, Chairman and Managing Director of Hindustan Aeronautics Ltd., said, “We believe that 49 per cent FDI in defence sector will boost production activities in India. This opens the door for a leading company, like HAL, to play a big role along with the other players in defence manufacturing.”
P. Dwarakanath, Chairman and Managing Director of BEML Ltd., said the move was well intended and the company was reading the fine print of its implications.
A general PSU view was that national interest was upheld by keeping the controlling stake in defence joint ventures in Indian hands.