Antony prevails, FDI cap in defence remains 26%

FDI cap in defence sector will remain at 26 percent and proposals beyond that will be considered by the Cabinet Committee on Security on case to case basis.

New Delhi: FDI cap in defence sector will remain at 26 percent and proposals beyond that will be considered by the Cabinet Committee on Security on case to case basis, according to a government decision which showed that Defence Ministry prevailed over the Commerce Ministry.

"FDI cap is 26 percent in defence sector, that stands like that. Any FDI proposal beyond 26 percent which brings state-of-the-art technology, that proposal would be considered by the CCS," Commerce Minister Anand Sharma told reporters here.

The Commerce Minister was addressing a press conference on decisions taken by a meeting headed by Prime Minister Manmohan Singh on FDI in different sectors.

The definition of state-of-the-art technology would be determined by the Defence Ministry, he said.

Commenting on the decision, Defence Ministry officials said depending on the quality of the technology on offer, the CCS will take a call on the proposals for FDI in defence sector.

The decision is on the lines of the assertion by Antony, who recently wrote to Sharma opposing any move to raise the cap to 49 percent.

Overruling the Commerce Ministry's proposal, Antony had said that "The deliberated view of the defence ministry .. remains that the FDI cap in the defence manufacturing sector should remain at 26 percent."

At the same time, he had said that whenever FDI beyond 26 percent "is likely to result in access to modern and state-of-the-art technology in the country, decisions can be taken to allow higher FDI on a case to case basis by the Cabinet Committee on Security."

Opposing that proposal, Antony had said that it will be a "retrograde" step and "stymie" the growth of the domestic industry while increasing dependence on foreign manufacturers.

In his letter to Sharma earlier this month, Antony had said the FDI cap could not be raised as the country "cannot afford to be dependent on foreign companies and vulnerable to policies of their countries of origin" in the field of defence on the long-term basis.

"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, and our dependence on foreign countries and OEMs for modern weapons will get perpetuated," he had written to Sharma.

The commerce ministry has been pushing for hiking the FDI cap in defence sector from 26 percent. It had earlier proposed hiking it to 74 percent but apparently due to defence ministry's tough stand on the issue, it has now proposed it to be 49 percent.

After the AgustaWestland chopper scam, the defence ministry has been stressing on the development of indigenous weapon systems for meeting the military requirements.

It changed its procurement policy and stress is now on procuring from local industry and making imports the last option.

The defence minister recently said that "Indigenisation of military hardware is the ultimate answer" to avoid controversies such as the chopper scam and asked the armed forces to change their mindset of relying on imports to meet operational requirements.

Moreover, the ministry is also planning of investing Rs 15,000 crore for developing the capabilities of the Ordnance Factory Board and the Public Sector Undertakings under it in the next five years.