India hikes foreign investment in defense production up to 74%

By Sarwar Kashani |

New Delhi, May 16 (efe-epa).- India on Saturday said it will hike foreign investment cap in defense production to 74 percent and cut its import bill to boost the economy paralyzed by the pandemic induced nationwide lockdown.

Finance Minister Nirmala Sitharaman told reporters that the policy reform to allow foreign players to invest up to 74 percent in the country’s defense manufacturing units from an existing 49 percent was to boost India’s indigenous production and make the country self-reliant.

There would be no government approval required for investment up to the new higher limit.

“It will have security clearances and everything else as always,” Sitharaman said, adding that safeguards would be put in place to protect the sensitive defense sector.

The minister was announcing the fourth tranche of a Rs 20 lakh crore stimulus package ($266 billion) that Prime Minister Narendra Modi announced to stem impact from the crippling lockdown that has brought the economy to a grinding halt.

India capped foreign direct investment in defense production up to 49 percent in 2016. According to a government statement, the country received over 18.34 billion rupees ($244 million) until last year’s end in defense FDI.

In another major reform in the defense procurement area, the finance minister said the government would soon come up with a list of weapons or platforms that can be made at home and banned for imports.

“We will notify a list of weapons and platforms for a ban on their imports and fix deadlines to do it,” she said.

However, the minister did not specify which defense equipment would figure in the list of weapons that would no longer be ordered from foreign sellers.

“Every year, this list will be increased because more capacities which come to be recognized and which meet the defense standards will be obtained domestically.”

She said the government was taking such steps to make “sure that Indian producers or defense equipment which are meeting with the standards, which armed forces want, will be purchased from India”.

The country has for years pushed for indigenization of the defense sector with a special thrust on weapons manufacturing in its Make in India initiative.

India has continuously maintained the second spot in the list of the largest arms importers in the world after Saudi Arabia between 2015 and 2019 with Russia, Israel, and the United States among the top suppliers, according to Stockholm International Peace Research Institute.

The country was also figured as the third-largest military spender in 2019 after the US and China. The two other military spenders in the list of the top five were Russia and Saudi Arabia.

India with its nuclear rival Pakistan has often been accused of setting off a regional arms race in South Asia.

However, its aircraft and warships mostly date back to the Soviet era, prompting modernization demands by its armed forces.

The country’s budget for this year for modernization of weapons, aircraft, and warships announced by Sitharaman was a meager 906 billion rupees ($13 billion) from the total defense budget of a little over 3,230 billion rupees.

The finance minister said as the government was aware of the fact that the armed forces needed the “best of equipment, some of the latest technology-driven equipment”.

As such, she said, “some hi-tech equipment that requires to be imported can be imported.”

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