Increase FDI in defence to speed up indigenisation

New Delhi, Mar 2: To speed up the process of defence indigenisation with latest technological transfer to domestic defence sector, the existing FDI's ceiling from 26 per cent to 49 per cent should be hiked. According to a paper brought out on Indian Defence Industry, by industry body ASSOCHAM it has been pointed out that India's spending on arms imports since 1999 Kargil conflict has risen to 25 billion dollars and will further rise to 30 billion dollars by 2012.

It is therefore, necessary to move towards acquiring self reliance in defence production, which could be possible if foreign equity in FDI's is raised to 49 per cent which will help India acquire defence technology for its increased arms production and thus shed its imports dependence, it added.

Releasing the findings of the study , ASSOCHAM President, Venugopal N Dhoot said that the Indian defence sector is established to be worth 5-8 billion dollars annually. If the economy continues to grow at current momentum, the country's defence spending is projected to increase from 2.8 to 3 per cent of the GDP in the future and this increase will be used to finance additional capital outlays for modern equipment.

India is the world's largest importer of defence articles as its services buy over 6 billion dollars worth of military hardware. As compared to India, Saudi Arabia and China; the next two large armament buyers in the developing world, notched up defence deals valued between just 2-3 billion dollars each in 2006.

In 2001, the Indian government opened up the defence production industry by allowing 100 per cent investment by private sector firms and at the same time, also allowed FDI of 26 per cent in select areas in the defence production. This needs to be further accelerated to 49 per cent, said Mr Dhoot as it will help procurement of latest technologies as per provisions of latest Defence Offset policy.

The policy is expected to bring in 10 billion dollars during the 11th five-year plan period as every foreign company is required to spend 30 per cent of the value on offsets goods or services purchased from Indian defence companies.

It has been stated that as India has a large industrial base, offsets will further develop its technical and manufacturing potential and they will also help to increase investments in domestic research and development. The policy is also expected to hugely benefit the Small and Medium Enterprises and is conducive for the private companies to have a larger presence in the defence set up.

Mr Dhoot said that host of Indian companies can get the benefit of offset policy and such a scenario will further boost country's economy in the near future. The offset policy is expected to generate market-entry opportunities for private companies, to invest in research and development and manufacturing of defence goods.

Currently, about 70 per cent of the procurement in value terms, is from foreign sources because the Indian public sector cannot deliver in terms of quality or speed on either research or production. And only about 30 per cent of the orders placed in India - or 9 per cent of the total - goes to the private sector.

The government has set a 70 per cent target for procuring its defence requirements from indigenous sources by 2010. For achieving this target the government is mainly relying on private players.

According to the study, the public sector is facilitating greater private sector participation in the area of defence goods production which will also contribute to the growth of domestic industries.

There are more than 5,000 companies supplying around 20 epr cent to 25 per cent of components and Sub-assemblies to state owned companies The current defence market for private sector firms in India, which includes outsourcing from Defence Public Sector Units and Ordnance Factories is estimated to be 700 million dollars. This spend will further increase since the Indian Defence Industry is determined to increase the participation of private players, it added.

UNI