India increases foreign direct investment, FDI, limit in defense sector from 49% to 74% via the automatic route. Accordingly, the decision is integral to make “Make in India” reforms effective.
Prime Minister Narendra Modi has been working on the initiative for the past years. The long-awaited move finally gained approval on Saturday last week.
According to Finance Minister Nirmala Sitharaman, the measure aims to boost local production of armaments. Additionally, this is also an attempt to gradually decrease massive import bills on the sector.
The finance minister will issue a list of weapons and platforms that are only purchasable from domestic industries. Moreover, she added that India will set a target of US$5 billion exports in defense sectors.
In short, the plan will focus on eight sectors. They include coal, minerals defense production, airspace management, aircraft repairs, power distribution companies, space sectors and atomic energy.
India will also ease restrictions on airspace utilization in order to reduce the cost of flights. In so doing, the country will auction six more airports to private sectors.
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How the Defense FDI Limit Increase Affects India
The increase of FDI limit is predicted to be beneficial for India for private sectors can have more participation in the sector. This is so considering Swedish company SAAB’s decision to quit a defense project last year due to low limit of ownership.
However, this increase of FDI will only be successful if and only if good procurement policies exist. Previously, India increased its FDI limit to 49%, but it did not result in a considerably good outcome.
During its first announcement in 2016-2017, India failed to attract any FDI in the sector. In 2017-2018, the country merely generated US$0.01 million FDI in defense.
In 2018-2019, the country managed to receive US$2.18 million of investment. However, the FDI was still far from what the country initially expected.
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