FDI ease for defence welcome, but more must be done: Experts

New Delhi, June 20 (IANS) Experts on Monday called as a welcome move the union government announcement of 100 per cent FDI (foreign direct investment) in defence, but felt more needs to be done to bring foreign investment in India.

The liberalised FDI regime announced on Monday permits up to 100 per cent foreign equity in defence sector as India looks ahead to increasing indigenous manufacturing in defence under ‘Make in India’ programme.

So far 49 per cent FDI was permitted in the equity of a company under automatic route, while FDI above 49 per cent was permitted through government approval on case-to-case basis, wherever it was likely to result in access to modern and “state-of-the-art” technology in the country.

However, under the new rules, foreign investment beyond 49 per cent will be permitted through government approval route in cases resulting in access to modern technology in the country or for other reasons to be recorded, while the condition of access to ‘state-of-the-art’ technology has been done away with. FDI limit for defence sector has also been made applicable to manufacturing of small arms and ammunitions.

Society for Policy Studie Director C. Uday Bhaskar said while the move should be welcomed, it is not a new policy.

“Hundred per cent FDI in defence is to be welcomed, but this is not such a new policy. There was a similar provision announced by the UPA government of 100 per cent FDI in defence for critical technology,” Bhaskar told IANS.

“However, it did not lead to any major FDI inflow into India, and one must ask why. The reason, to my mind, has to do with the nature of the Indian eco-system for FDI across the board,” he said.

“The astute foreign entity who plans to invest in India for the long term is seeking a viable and reliable return on investment. So the whole package has to be conducive from taxation laws to labour laws, ease of land acquisition, availability of basic infrastructure like water, power, roads and the like,” he said.

“Regrettably, the reason why India is not able to attract any serious FDI is that the Indian system is not conducive for long-term returns. How to make the transition from red tape to red carpet is a challenge for Prime Minister Modi,” he said.

Defence expert and member of Institute for Defence Studies and Analyses (IDSA) Laxman Behera said that there is an improvement on the previous policy, but expressed doubt if it will make a big difference.

“The FDIs still have to be approved by the government and on case-to-case basis. This is an improvement on previous policy, but I have doubt whether it will help. No one will come and set up a plant unless there is a guarantee that government will buy their product,” he said, adding that the new policy is still a big improvement from the previous ones.

Behera also said that the term ‘state-of-the-art’ technology, which has been done away with, was not clearly defined nor is there a clear distinction between ‘state-of-the-art’ and ‘modern’ technology.

“It is not game changing… state-of-the-art or modern technology, these are all semantics. But government will take a view on that, and from India’s point of view, anything superior from what we have today is ‘modern technology’,” he said.

Behera added: “It’s an open-ended policy which is bit simpler than previous policies”.

–IANS

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