The COVID-19 pandemic, which has revealed the inherent weaknesses in the existing global supply chain and risks of over-reliance on China’s manufacturing industry, presents new opportunities for India to rethink its industrial strategy, especially policies concerning the growth of its manufacturing sector.
Raising the FDI limit by itself may not enthuse the foreign investors as per the expectations. To make the defence sector more attractive for foreign investment, a whole lot of other related issues will have to be addressed by the government.
The government should set up a task force to engage with potential investors and investees and evolve a simplified FDI policy, which has different slabs for different kinds of activities and is free from terms and conditions that are difficult to understand and implement.
It is rare that a foreign company makes a huge investment to produce major platforms in a third country with a view to make that country an export hub.
Vivek Chadha replies: There is no force in the world which can claim to have its entire range of weapon systems at the cutting edge level. Normally, depending upon the threat perception of a country and the capability it chooses to develop, a policy is formulated which lays down the mix of weapon systems that is required to be maintained.
Under the earlier policy, the foreign portfolio investment in Indian defence industry was either banned, or capped at an arbitrary level for certain companies, causing a lot of dissatisfaction among several listed Indian companies which had pleaded their genuine helplessness in controlling such investments given their nature of flow.
The proposal to relax the present cap on FDI in defence has expectedly drawn sharp reactions. Those who oppose argue that higher FDI is not required and, more importantly, it will not be in national interest, not the least because it will stymie the process of indigenization. This calls for a dispassionate analysis.
One of the provisions in the policy is that in the Information & Broadcasting and the Defence sectors, where the sectoral cap is less than 49 per cent, the company would need to be ‘owned and controlled’ by resident Indian citizens and Indian companies, which, in turn, are owned and controlled by resident Indian citizens. This is a virtual impossibility.
The MoD is possibly of the view that allowing foreign companies to set up manufacturing and assembling facilities in India will stymie the growth of indigenous design and development activities.
Increase in FDI Cap Alone Not Enough for Defence Sector
Raising the FDI limit by itself may not enthuse the foreign investors as per the expectations. To make the defence sector more attractive for foreign investment, a whole lot of other related issues will have to be addressed by the government.