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Home / India News / Govt plans higher FDI, local weapons for self-reliant defence sector

Govt plans higher FDI, local weapons for self-reliant defence sector

india Updated: May 16, 2020 23:42 IST

NEW DELHI: From raising foreign direct investment (FDI) in defence manufacturing to creating a separate budget for buying locally made military hardware and notifying a list of weapons and equipment that cannot be imported, finance minister Nirmala Sitharaman on Saturday announced a raft of measures to boost self-reliance in the defence sector.

The other steps announced by Sitharaman to give a push to Prime Minister Narendra Modi’s ‘Atmanirbhar Bharat Abhiyan’ (Self-Reliant India Movement) include corporatisation of the Ordnance Factory Board (OFB), indigenisation of imported spares and setting realistic qualitative requirements of weapons to support the local industry.

The minister said the FDI limit in the defence manufacturing sector under the automatic route will be hiked from 49% to 74% subject to security clearances.

“The increase in FDI limit to 74% through the automatic route is a welcome step. But care must be taken to safeguard our start-ups, which have enormous prospects, from being bought over,” said Air Vice Marshal Manmohan Bahadur (retd), additional director general, Centre for Air Power Studies.

The minister said the list of weapons banned for import will be reviewed every year and more items will be added to it after discussions with the department of military affairs (DMA). This implies India will have to compulsorily develop technology for the defence systems and platforms figuring on the negative import list.

One of the key responsibilities assigned by the government to the DMA, headed by chief of defence staff General Bipin Rawat, is to promote the use of indigenous military equipment in the armed forces.

Imports account for 60-65% of the country’s military requirements and it has signed contracts worth billions of dollars during the last decade for weapons and systems including fighter jets, air defence missile systems, submarine hunter planes, attack helicopters, heavy-lift choppers and lightweight howitzers.

Sitharaman highlighted the need for the “realistic setting” of general staff qualitative requirements (GSQRs) of weapons and platforms. “Sometimes unrealistic quality requirements are set and quite a lot of time is spent in searching for suppliers who will meet all those requirements…you will end up with just one supplier and since buying from a single supplier is not permitted, you do the entire circle all over again,” she said. The minister also spoke about overhauling trials and testing procedures.

GSQRs are the specifications put out by the armed forces for the equipment they need. “The point about having ‘realistic’ GSQRs is debatable; it is inconceivable that the forces are given equipment that doesn’t meet their operational requirements fully. Phase-wise development of a war fighting system is an accepted methodology but GSQRs must meet operational necessity in full,” said Air Vice Marshal Bahadur.

The minister said the corporatisation of the OFB would help improve autonomy, accountability and efficiency in ordnance supplies.

The Confederation of Indian Industry said the government’s focus on domestic manufacturing was encouraging as the country was among the largest importers of defence equipment in the world.

CII director general Chandrajit Banerjee said: “The list of non-importable items and corporatisation of the OFB are some landmark steps and will boost the confidence of domestic manufacturers. The increase in FDI limit will attract foreign funds into this sector along with technology infusion.”

India was the third-biggest military spender in the world last year after the United States and China, the Stockholm International Peace Research Institute (Sipri) said in a report released in April.

Sitharaman also announced giving the private sector a role in India’s space programme, including in satellites, launches and space-based services. For boosting private participation in space activities, government will provide level playing field for private companies in satellites, launches and space-based services.

Also, the government will provide predictable policy and regulatory environment to private players, she said.

The private sector will be allowed to use ISRO’s facilities and other relevant assets to improve their capacities.

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