NEW DELHI: The Commerce and Industry Ministry has prepared a draft Cabinet note for liberalising FDI in the defence sector to boost domestic manufacturing and reduce dependence on imported equipment.
The Department of Industrial Policy and Promotion (DIPP) is waiting for the new Commerce and Industry Minister to take charge, sources said.
“We are going to propose several steps in order to boost manufacturing sector’s growth and attract more FDI in sectors like defence,” an official source told PTI.
The DIPP is in the favour of raising the FDI cap in defence to 74 per cent, which includes 49 per cent under automatic route, sources said.
They added that the Cabinet note on relaxing FDI norms in railways and construction sectors will also be placed before the new minister. The Narendra Modi-led BJP government is to take charge next week.
Although the UPA government did not changed the current FDI cap in the defence sector at 26 per cent, proposals beyond that limit are to be considered by the Cabinet Committee on Security (CCS) on case to case basis.
The outgoing defence minister A K Antony was not in favour of hiking the FDI cap.
The DIPP is also working on the issue of FDI in e-commerce retailing. Recently it has held a meeting with all the stakeholders including Google, Amazon and Flipkart on the matter.
The e-retailing companies have been seeking FDI in e-commerce retailing. India’s FDI policy restricts e-commerce companies from offering services directly to retail consumers. At present, 100 per cent FDI is allowed in business-to-business (B2B) e-commerce but not in retail trading.
In May 2010, DIPP had rolled out a discussion paper suggesting increase FDI cap in the defence sector.
India opened up the defence equipment industry to private sector in May 2001, but restricted foreign participation to 26 per cent in this capital-intensive and sensitive sector.
India is one of the largest defence importers in the world with a minuscule component of exports. It ranks among the top ten countries in the world in terms of military expenditure.
India at present imports over $8 billion worth of defence equipment and its defence budget is growing at an average of 13.4 per cent annually since 2006-07.
“The bulk of the domestic production is met either through the Ordnance Factories or the Defence PSUs.
Even when defence products are manufactured domestically, there is a large component of imported sub-systems,” DIPP had said.
