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Lack of consensus cast a shadow over fate of increasing FDI ceiling in Defence sector

27 May 2011 Evaluate

Lack of consensus between the Ministry of Defence (MoD) and Ministry of Commerce and Industry has casted a shadow over the fate of increasing Foreign direct investment (FDI) ceiling in the sensitive sector for a long time now. Given the strategic nature of the subject, several brainstorming sessions took place yet it still remains to be seen as to when a formal proposal will be moved in this regard.

It has been over a year that the Department of Industrial Policy and Promotion (DIPP), under the Ministry of Commerce and Industry, put out a discussion paper on raising foreign direct investment in defence sector to 74%, in order to enable global defence entities to set up manufacturing units in the country. However, the proposal did not find many supporters from the Ministry of Defence (MoD) which is against raising the limit to the extent DIPP has proposed but showed some inclination towards raising the cap to 49%.

Currently, foreign direct investment upto 26% is allowed in defence production. Hindustan Aeronautic, Ordnance Factory Board and Bharat Electronics are the only three Indian companies which make it to the list of top 100 defence companies in the world accounting for a meager 1.1% share of the global industry. The government is the sole purchaser of defence equipment spending around 15% of the central government expenditure.

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