The cap on foreign direct investment (FDI) in defence manufacturing is all set to go up to 74 per cent. This was announced by the Finance Minister Nirmala Sitharaman on May 16, 2020 as a part of the wider reforms package for eight sectors. Though not specially mentioned by her, foreign investment beyond 74 per cent will most likely continue to require the government’s permission. The decision to raise the FDI cap has taken many by surprise.
It may be recalled that in 2013 the then commerce and industry minister in 2013 had proposed to raise the cap to 74 per cent, but the ministry of defence (MoD) opposed it on the grounds that this will hamper the growth of the Indian industry. Even the NDA government found it expedient not to raise the cap beyond 49 per cent while amending the FDI policy on a couple of occasions after assuming power in 2014. The Indian industry was anyway never too warm to the idea. It seems unlikely that the MoD and the industry have had a change of heart.
The reform package announced on May 16 also includes some other measures like corporatisation of the ordnance factories board, creating a negative list of importable defence items and providing a separate budget for domestic capital procurement. The finance minister made it clear that these reforms are intended to pave the way for an Atmanirbhar Bharat – the new mantra for resuscitating India’s economy savaged by the Covid-19 pandemic.
One must, therefore, shed the past prejudices and judge the efficacy of the reforms package, especially raising of the FDI cap, by the promise it holds for promoting ‘atmanirbharta’ (self-reliance) in defence production and associated activities. Sadly, the prospects do not look very promising if the objective is to achieve self-reliance in defence. One can, of course, give a twist to this polysemic term and argue that it means something other than self-reliance, but that would be ingenuous.
This story is from the June 2020 edition of Geopolitics.
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This story is from the June 2020 edition of Geopolitics.
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