Defence minister AK Antony has turned down a commerce ministry proposal to hike the cap on foreign direct investment (FDI) in defence from 26% to 49%, at a time when the Jet-Etihad deal has brought FDI in the aviation sector into sharp focus.
In a letter written to commerce and industry minister Anand Sharma, Antony termed raising the FDI cap in defence as a “retrograde step” that could hamper the growth of indigenous defence sector.
“Allowing foreign companies to set up manufacturing/assembly facilities here would be a retrograde step as it will stymie the growth of indigenous design and development capabilities,” he wrote in the letter.
Sticking to his known stand on FDI in the defence sector, Antony said raising the cap would increase India’s dependence on foreign firms for modern weapons and platforms.
Sharma has been a supporter of raising the FDI cap in the defence sector.
"The deliberated view of the defence ministry, therefore, remains that the FDI cap in the defence manufacturing sector should remain at 26 per cent," the minister wrote.
Antony said wherever FDI beyond 26 per cent was likely to bring in modern technology into the country, the Cabinet Committee on Security would take a final call on allowing higher FDI on a case-to-case basis.
He said the country could not afford to remain dependent on foreign vendors, and vulnerable to their policies in the long term.
The new defence procurement policy, released on June 1, made it clear that the armed forces would have to state reasons for rejecting the country’s public and private sectors in favour of importing weapons.
That was one of the most significant amendments to the government’s two-year-old arms procurement policy to empower India’s domestic defence sector and cut dependence on imports, following alleged kickbacks in the Rs. 3,760-crore VVIP chopper deal.
The thrust of the new policy is to give an impetus to indigenisation and help create a level playing field for the Indian industry.