Assocham Recommends 49 Percent Initial FDI in Defense Sector

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May 4 – The Associated Chambers of Commerce and Industry of India (Assocham) is recommending that only up to 49 percent foreign direct investment be initially allowed for the defense equipment sector.

The defense industry proposed earlier that 100 percent foreign direct investment be allowed in the sector to stimulate domestic manufacturing. Assocham advises that this proposal be thoroughly evaluated by the government first before any decision is finalized.

Consensus has yet to emerge on hiking the FDI ceiling in defense from current level of 26 percent as the Ministry of Defense itself is opposed to the idea due to security concerns, Assocham President Swati Piramal said in a statement. India’s defense industry is one of the sectors with restricted FDI access because of its sensitive nature.

India can acquire self-reliance in defence production by increasing the FDI ceiling to 49 percent and subsequently this could be increased to 100 percent later, Assocham added.

The country has been aggressively updating its defense capability since last year when it announced that it would modernize its armed forces by adding 100 warships to its navy in the coming decade. It has also signed contracts with Italy, France and the United States for modern defense technology.

According to India’s 11th Five-Year Plan, foreign companies will be required to spend 30 percent of the value on offsets goods or services purchased from Indian defense companies.