Budget 2014: Jaitley’s FDI dose to improve defence, insurance sectors

In a bid to reduce India's defence imports and boost indegenisation of Indian defence sector, Finance Minister Arun Jaitley on Thursday proposed raising the Foreign Direct Investment (FDI) cap from 26 per cent to 49 per cent with full Indian management and control through the FIPB route.

The Government has allocated Rs 2.29 lakh for defence expenditure in the financial year 2014-15 and raised the capital outlay by Rs 50 billion over interim budget.

FDI in defence, a much needed move:

"India today is a largest buyer of defence equipment in the world. Our domestic manufacturing capabilities are still at a nascent stage.

"We are buying substantial part of our defence requirements directly from foreign players, companies controlled by foreign governments and foreign private parties are supplying our defence requirements to us and at a considerable outflow of foreign exchange," Jaitley said while presenting the Budget for 2014-15.

Modernisation of Indian defence industry:

India is biggest buyer for defence equipment in the world with Russia and US its biggest suppliers. But the Governments never thought of manufacturing homemade weapons and even become potential a market for other countries.

The country has made significant achievements in space technology but nothing substantial has been done to improve its defence sector.

India’s domestic manufacturing capabilities are still at a nascent stage

With this move the Modi-dispensation took a crucial step towards modernising India's defence sector and producing jobs as well.

Meanwhile, former defence minister AK Antony criticised the move and called it a threat to national security.

Then there was someone like former Army chief and present MoS North East Affairs VK Singh who lauded the move.

Jaitley's boost for capital-starved private insurance sector:

Also, the Government has brought a major relief to the capital-starved private insurance sector, by proposing to raise the FDI cap from 26 per cent to 49 per cent.

"The insurance sector is investment starved. Several segments of insurance sector need expansion. The composite cap of the insurance sector is proposed to be increased to 49 per cent from the current level of 26 per cent with full management and control through the FIPB route," he added.

The move would help insurance firms to get much needed capital from overseas partners.

The proposal to raise FDI cap has been pending since 2008 when the previous UPA government came up with Insurance Laws (Amendment) Bill to hike foreign holding in insurance joint ventures to 49 per cent from the existing 26 per cent.

Jaitley has said that the new government will take up the Bill soon. Experts were speculating it from very beginning that the Narendra Modi Government will raise the FDI cap in these two sectors. But it will be interesting to see how this move will prove out to be a boon for both the sectors.