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‘Lack of incentives driving away FDI in defence sector’

Last Updated: Friday, August 21, 2009 - 11:51

New Delhi: Pitching for raising foreign direct investment limit to 49 per cent in the defence sector, a study on India`s military exports has said global players are reluctant to fund the industry in the capital-intensive sector due to lack of incentives.
"The raising of the FDI limit to 49 per cent would go a long way in reducing the risk of Indian companies besides providing them an opportunity to access technical and
managerial skills of the foreign companies to rise up the global value-chain rapidly," a joint study by industry body Assocham and research firm Ernst and Young said.

Noting that the existing policy permitted 26 per cent FDI in the defence sector, the report said it did not provide foreign investors incentives with respect to capacity expansion, buy-back guarantees and exports, while subjecting them to purchase and price discriminations vis-a-vis public sector enterprises.

"Given these constraints, major investors are reluctant to invest in Indian companies where they would have little control. Once permitted to increase the FDI limit to 49 per
cent, foreign companies will have clear incentives to invest, enabling Indian companies to be part of their global supply chain," it said.

Bureau Report

First Published: Friday, August 21, 2009 - 11:51

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