Defence FDI hike awaits cabinet order
13 Aug 2014 5:56 AM IST
Only after the order reaches the department of industrial promotion and policy (DIPP) will the rules governing the proposal be drawn up.
But in the interim, attempts are being made by sections within and outside the government to tilt the scales more in favour of the entities who would get the FDIs. There are speculations that the domestic component of 51 per cent equity stake in a joint venture with a foreign partner could be distributed among more than one entity. This would mean no one domestic entity will have the full strength of majority equity in its own hands.
In other words, this entails that the entity who gets 49 per cent equity would have an effective management control of the joint venture, an issue that precisely had been sought to be avoided – at least explicitly – by the Modi government. However, this is not a settled fact yet. Amitabh Kant, the secretary, department of industrial policy and promotion, told Millennium Post: ‘The cabinet order is not in our hands yet. Let us wait for that, before all these issues could be tackled.’ In Parliament on Tuesday, the defence minister, Arun Jaitley, informed the Rajya Sabha, ‘In the union budget 2014-15, it has been announced that the composite cap of foreign exchange is being raised to 49% with full Indian management and control through the FIPB route for defence sector.’
He also said: ‘The current FDI policy for defence sector includes the condition that there would be a 3-year lock-in period for transfer of equity from one non-resident investor to another non-resident investor (including NRIs and erstwhile OCBs with 60% or more NRI stake) and such transfer would be subject to prior approval of the government.’
While the Left parties have strongly opposed the move of increasing the FDI cap in defence industries – even AK Antony had opposed the move – the urgency with which Modi government had brought in liberalising measures in the sector caused a lot of consternation.
Though some sections of the defence watchers have welcomed the move because they feel that higher equity participation by offshore entities will bring better technologies that the sector sorely needs. Yet, history has taught the country how foreign entities are basically ‘fair weather friends’ and are chary of getting proprietorial technologies even as they decamp at the first sign of trouble.
But in the interim, attempts are being made by sections within and outside the government to tilt the scales more in favour of the entities who would get the FDIs. There are speculations that the domestic component of 51 per cent equity stake in a joint venture with a foreign partner could be distributed among more than one entity. This would mean no one domestic entity will have the full strength of majority equity in its own hands.
In other words, this entails that the entity who gets 49 per cent equity would have an effective management control of the joint venture, an issue that precisely had been sought to be avoided – at least explicitly – by the Modi government. However, this is not a settled fact yet. Amitabh Kant, the secretary, department of industrial policy and promotion, told Millennium Post: ‘The cabinet order is not in our hands yet. Let us wait for that, before all these issues could be tackled.’ In Parliament on Tuesday, the defence minister, Arun Jaitley, informed the Rajya Sabha, ‘In the union budget 2014-15, it has been announced that the composite cap of foreign exchange is being raised to 49% with full Indian management and control through the FIPB route for defence sector.’
He also said: ‘The current FDI policy for defence sector includes the condition that there would be a 3-year lock-in period for transfer of equity from one non-resident investor to another non-resident investor (including NRIs and erstwhile OCBs with 60% or more NRI stake) and such transfer would be subject to prior approval of the government.’
While the Left parties have strongly opposed the move of increasing the FDI cap in defence industries – even AK Antony had opposed the move – the urgency with which Modi government had brought in liberalising measures in the sector caused a lot of consternation.
Though some sections of the defence watchers have welcomed the move because they feel that higher equity participation by offshore entities will bring better technologies that the sector sorely needs. Yet, history has taught the country how foreign entities are basically ‘fair weather friends’ and are chary of getting proprietorial technologies even as they decamp at the first sign of trouble.
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