MoD Opposed to Lifting 26% FDI Cap in Defence Production Sector .

NEW DELHI: The defence ministry remains opposed to moves to lift the 26% foreign direct investment cap in the defence production sector despite mounting pressure both from within the government as well as the private sector.

This comes in the backdrop of the commerce ministry, backed by the home and finance ministries, once again pushing for a note for the Union Cabinet to allow 49% FDI in the defence sector.

Asked about this on Tuesday, defence production secretary R K Singh only said a group of ministers was examining the matter and the "final decision'' was yet to be taken.

Sources, however, said defence minister A K Antony was sticking to his oft-repeated stand that "26% was enough at the moment'' in the "sensitive and strategic'' defence sector.

Antony in the past has also held the Indian defence sector was simply not ready to absorb more FDI but proposals could be examined on "a case-by-case basis'' if the need arose.

It was in May 2001 that the government had opened up the defence sector to 100% for the Indian private sector, with FDI permissible up to 26%, both of course subject to licensing. Till then, the sector was largely the preserve of the public sector.

Last year, the commerce ministry's Department of Industrial Promotion and Policy had even proposed the FDI limit in the defence sector be hiked to as much as 74%. The year before that the Economic Survey had also called for the FDI limit to be raised to 49%, with even 100% being allowed in a case-by-case basis.

But the MoD has not shifted from its stand till now. The latest move comes after finance minister Pranab Mukherjee recently held a meeting to consider hiking the FDI limit in defence to 49%. While home minister P Chidambaram and commerce minister Anand Sharma apparently backed the proposal, Antony expressed his reservations.

Defence may be a strategic sector, in which many countries do not allow much FDI, but there is also no getting away from the fact that India desperately needs a robust defence-industrial base (DIB) since it still imports 70% of its military hardware and software. Some experts believe that a strong DIB, even with higher FDI, will be better than being strategically-vulnerable to imports.

Source : timesofindia.indiatimes.com