Foreign direct investment (FDI) in the defence sector should not be raised to 100 percent from the present 26 percent, says the Confederation of Indian Industry (CII).

FDI in defence should not be raised to 100 percent

Foreign direct investment (FDI) in the defence sector should not be raised to 100 percent from the present 26 percent, says the Confederation of Indian Industry (CII).

"Industry is not in favour of 100 percent FDI in defence segment. Increasing the FDI limit to 49 percent would be beneficial," said the industry lobby.

In May 2001, the government allowed the participation of the private sector in the defence industry permitting 100 percent equity with a maximum of 26 percent of FDI, subject to licensing.

Under the 2008 Defence Procurement Procedure, up to 49 percent FDI was allowed on a per case basis. However, the foreign investment promotion board is yet to approve the formation of a venture with a 49 percent FDI component.

"FDI in defence industry is indeed essential because most defence products involve a relatively high level of technology and this technology gets transferred only if the foreign partner has a long term stake in the company. The aim of seeking FDI by India in its defence sector may be to get both funds and technology," it said.

The CII suggested that the current 26 percent FDI in defence may be increased and joint venture (JV) with foreign partner should be encouraged in research and development, and the intellectual property rights should be kept with the JV.

"Foreign partner should ensure JV's access to the global market, subject to the government approval. The partner should bring high level specialised technology that is not easily available," it said.

It also suggested that India should consider incentives like tax holidays and grants, and leverage its technical manpower against foreign technology. Besides, import of dual use technology should be encouraged as it benefits other segments of the economy also.

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