Very few firms rush to India's defence

Almost a year after the government opened defence production to private investors, both domestic and foreign, the country is yet to receive a proposal for either technical collaboration or foreign investment in the sector. Only a couple of proposals for production have come from Indian companies.

As per the existing policy, 100 per cent private investment is permitted in defence production, which can include a maximum of 26 per cent equity investment by a foreign company. The proposals have to be routed through the Foreign Investment Promotion Board and are subject to scrutiny by the ministries of defence and external affairs.

The government, however, is not unduly worried. “We did not expect a flurry of foreign direct investment proposals in the sector,” a government official said. According to him, the idea of opening up defence production to foreign investors was to encourage domestic private investments in the sector, and not foreign investment.

"We allowed 26 per cent FDI because we thought that private companies in India might require technical knowhow from foreign arms and ammunition majors, and that might ease the flow of technology. But even with 26 per cent FDI, we were aware that the flow of foreign money would be minimal," the official said.

Although domestic industry associations, especially the Confederation of Indian Industry, had lobbied hard for liberalising the sector, hardly any Indian company has shown interest. Only a couple of companies had applied for production licences and their applications were being scrutinised, said officials in the licensing department of the industry ministry.

A few other companies have made enquiries, and the government is hoping that these will result in fresh investments.

"The chambers had lobbied hard because many Indian firms in the capital goods industry, which had been witnessing a slump for years, would have got an opportunity to utilise their idle capacities if defence production was allowed. The government also decided to free the sector because there was not only export potential for arms from India, but in the polarised world (after the Cold War), India was finding it hard to access technology from Russia and other Commonwealth of Independent States countries, which had been India's closest ally for a long time," said the official.