US asks India to raise cap FDI in defence to 49%

Buoyed by its armament majors securing multi-billion contracts, US has asked India to raise its cap on FDI in defence sector to 49 percent from existing 26 percent.

Updated: Feb 25, 2010, 14:20 PM IST

Washington: Buoyed by its armament majors securing multi-billion contracts, US has asked India to raise its cap on FDI in defence sector to 49 percent from existing 26 percent.

Making a pitch for this, the Obama Administration also wants India to undertake more sweeping reforms to attract new investments, saying this will propel New Delhi to a higher growth rate.

"Reforms to date have made Indian companies leaders in areas such as IT, pharmaceuticals, telecommunications, and now increasingly, in manufacturing as well as in clean energy. We hope the India will seize the opportunity to undertake new reforms that will both attract new investment and propel higher growth," Assistant Secretary of State for South and Central Asia Robert Blake has said.

Blake was more particular on opening up of the defence sector, saying, "we are urging the Indian Government to raise the cap on foreign equity in Indian defence firms from 26 percent to 49 percent to provide more opportunities for US companies interested in defence sales in India."

His comments at the Washington International Business Council meeting come as US defence majors Lockheed Martin, Boeing and other firms have bagged almost all the major Indian armed forces contracts worth more than USD 10 billion.

These includes sale of Hercules C-130 J transport aircraft and Boeing P-8A maritime reconnaissance aircraft. US companies are in strong contention for sale of next generation
fighter aircraft to the Indian airforce.

Noting that the US recently had some important sales to India, Blake said there are significant new sales on the horizon, up to USD 18 billion worth of contracts, for which
American companies are competing.

Calling India as a rising global power, soon to be the world`s most populous country, with a trillion dollar-plus economy, Blake said it is a model of a tolerant pluralistic
society in the region.

"And it is a country increasingly comfortable with working with the United States," Blake said.

This past July, Secretary of State Hillary Clinton visited India and launched a Strategic Dialogue which called for increased collaboration in a number of areas that fall under five pillars: strategic cooperation; energy and climate change; education and development; economics, trade and agriculture; and science, technology, health and innovation.

In November, President Barack Obama hosted Prime Minister Manmohan Singh for the first state visit of his Presidency, calling India an "indispensable" nation.

President Obama has also pledged to visit India in 2010, further underscoring the importance of India to the United States, he said.

The State Department official said the strength of India`s economy makes it the powerhouse of South and Central Asian regional growth.

"The Indian economy has been one of the fastest growing economies in the world since 2003, averaging 8 to 9 percent growth in recent years... India`s economy grew about 5.6 percent in 2009, and is expected to grow 7.7 percent this year. If India can sustain its economic reforms, it has the potential to sustain close to double digit growth rates for many years to come," Blake said.

One sign of India prospering internal market is its growing middle class which now numbers about 300 million and is expected to double over the next 20 years to reach 600 million. To put that into perspective, that`s roughly the size of the total population of the European Union right now, he noted.

As part of the US-India Strategic Dialogue, the US government is working with India to expand business opportunities, he said, adding the economics, trade, and agriculture pillar of the Dialogue is particularly important for business.

"Our trade has doubled just in the last five years. US exports to India were more than USD 28 billion in 2008. We expect that growth to continue into the foreseeable future as India`s middle class continues to grow and as India`s economy continues to open up. US investment also has grown very quickly, and now totals more than USD 16 billion," he said.

"The strategic cooperation pillar also is expected to offer numerous business opportunities. Last year, our two governments agreed on an end-use monitoring arrangement that will help the process of technology transfer between our two countries, and I think there`s scope for further progress in that area," Blake said.