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Armed forces want 49% FDI in defence; Antony pitches for 26%

Defence minister AK Antony’s last week, on the eve of his visit to China, stated that only 26 per cent foreign direct investment (FDI) into the country’s defence manufacturing sector could be allowed by the ministry of defence (MoD). However a major section of the armed forces’ brass is firmly pushing a line that at least 49 per cent should be allowed.

Forty nine per cent FDI, into the sector is required for the country to be able to access much needed technology and train Indian manpower, according to major sections of the armed forces brass. The standing logic is that only when foreign entrepreneurs have a large stake in a joint can they be made to part with the ingredients on which a domestic defence industrial sector can be built.

The proposal for 49 per cent originally emanated from the commerce ministry, whose ambitious minister, Anand Sharma had earlier pitched for an even higher ceiling at 74 per cent.
To buttress the argument for a 49 per cent FDI limit, a senior air force official at the apex of defence policy making gave the predictable example of China. ‘When China placed a large order with Airbus for supply of aircrafts, it made the company to set up a plant in the nation and also was asked only to employ Chinese employees, so that they could be trained.’

Amit Cowshish, a recently retired financial adviser (procurement), said, ‘We can easily reach the conclusion that a higher FDI limit will mean higher commitment by the foreign partners. But what we need along with that is a strong regulatory body that can dictate terms, which align with national interest. This policy of revolving-door bureaucrats cannot run defence ministry like they do with say, agriculture ministry.’

The view of the Defence Research and Development Organisation (DRDO) was explicated by its former director general, VK Saraswat, when he had said that the primary criterion for FDI infusion limited to 49 per cent is the sharing of technology. And for this technology to percolate down to the bottom rung of the manufacturing, DRDO has to play the role of a catalyst.

It needs to be made clear  that following the Chinese example, the state owned enterprises should, ‘under no circumstances’ be ‘de-nationalised’ in the scramble to get FDI. There Antony has to remain the keen watchdog, he being a ‘leftist’ as some have begun to describe him.

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