NEW DELHI — The Indian Ministry of Defence (MoD) is considering changes to its policy that limits how much overseas defense companies can invest in a joint venture with an Indian company.
Indian law allows automatic foreign direct investment (FDI) but with an upper limit of 49 percent. The limit can be increased beyond 49 percent up to 100 percent, but only on a case-by-case basis. However, no clearance has been given to any overseas foreign company beyond 49 percent as the procedures are regarded as cumbersome and confusing.
"Overseas defense companies want to invest beyond 49 percent but there is no set procedure so far on giving approval for FDI investments beyond 49 percent," an MoD official said.
With the aim of speeding the clearances, the MoD is considering an internal note on the matter — in consultation with the domestic defense industry, which also seeks speedy clearance for FDI.
Indian Defence Minister Manohar Parrikar told Parliament early this month that only $0.16 million has been invested through the FDI route since 2014.
Pierre de Bausset, president of Airbus Group India has said that his company needed to own a majority share in joint ventures to justify more investment.
The ruling government had increased the FDI limit from 26 percent to 49 percent in January 2015 but overseas companies have continued to shy away from investing in India.
Still, analysts say increasing the FDI limit does not guarantee such investments in India's defense industry.
"It is unlikely that any foreign original equipment manufacturer (OEM) will be willing to bring in state-of-the-art technology without control over management of the entity to which it is transferred in India," said Amit Cowshish, MoD's former additional finance secretary. "But even this may not be enough. To my mind, no business case can be made for investment if there is no reasonable assurance of an order at the end of the process. The eco-system also has to improve several notched before India becomes a hot destination for investment in the defense sector."
The MoD internal note seeks to clarify the issues so that the Foreign Investment Promotion Board (FIPB) — the body that gives clearance to FDI ventures — can find it easier to approve proposals beyond 49 percent.
The MoD note says proposals for FDI above 49 percent must be examined on case-to-case basis by a standing committee headed by the secretary of defense production, the MoD official said. Secondly, the OEM will have to ensure a minimum level of indigenous content. Thirdly the OEM will have to appoint only Indian citizens as chief security officer and cyber information security officer of the Indian project.
Currently, the only proposal before the FIPB is from DCNS of France to set up a 100 percent subsidiary in India to produce air independent propulsion technology in submarines.
Vivek Raghuvanshi is the India correspondent for Defense News.
