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Ficci against upping defence FDI

July 26, 2010 18:03 IST

FicciFederation of Indian Chambers of Commerce and Industry on Monday opposed raising the foreign direct investment cap in defence saying the existing limit of 26 per cent has attracted sufficient investment in this strategic sector.

"The 26 per cent FDI cap in the defence sector has already attracted top overseas defence OEMs. Therefore, any increase in the FDI cap in tis strategic sector will require careful thinking and analysis," Ficci secretary general Amit Mitra told reporters in New Delhi.

Mitra said even with 26 per cent FDI, the sector has already attracted top overseas defence original equipment manufacturers like BAE, EADS, Sikorsky,Lockheed Martin, Electtronica Defence Systems etc to 'hugely' invest in the country's defence sector.

Any revision upwards from 26 per cent will have to be approached carefully, he said, adding, "forty-nine per cent of FDI can only be considered on the basis of a set of conditions."

The industry ministry in a recent concept paper proposed raising the FDI cap in the defence sector to 74 per cent.

Mitra, however, said overseas companies in no case should be allowed to hold more than 49 per cent in companies in the defense sector.

"We are absolutely clear that FDI should not be more than 49 per cent," he said. He said the defence sector could not be compared with segments like FMCG, steel or cement where even 100 per cent FDI would not be a problem.

"This sector involves creation of capacity, technological capabilities and in the long-run defence of the country," Mitra said.

Ficci argued that since FDI and transfer of technology are not always directly proportional, 'raising FDI is no guarantee for true transfer of technology'.

"The fact is that leveraging latest technologies from overseas suppliers would be difficult even if the FDI ceiling is raised as the OEMs exercise no control over the release of technology which is exclusively under their governments' control," Mitra said.

Ficci said FDI cap should be raised to 49 per cent only on certain conditions like the investments should have minimum capitalisation of USD 100 million, export obligation of 10 times the equity and indigenous source of components.

Earlier, another industry chamber CII too had expressed reservation against more than 49 per cent FDI in the sector.

The government had opened up the defence equipment industry to private sector way back in May 2001,but restricted foreign participation to 26 per cent.

The country imports over $8 billion worth of defence equipment and its defence budget has been growing at 13.4 per cent annually since 2006-07.

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