Friday, June 18, 2010

India Not Planning To Increase Foreign Direct Investment Limit

Aerospace Daily & Defense Report
June 17, 2010

NEW DELHI — Those awaiting news about an increase in India’s current 26% cap on foreign direct investment (FDI) in defense joint ventures are liable to be disappointed.

R.K. Singh, secretary for defense production, said at the Eurosatory defense expo in Paris that the ministry favors continuing with the FDI limit.

International investors have argued that the cap should be raised to 49%(Aerospace DAILY, May 11).

India’s defense expenditure for 2010-11 is around $32 billion. A report says Indian defense procurement could rise to $42 billion (including $19.2 billion for capital acquisition), which could make India a lucrative market for vendors to set up shop.

The defense capital expenditure budget is expected to achieve a compound Annual Growth Rate (CAGR) of 10% over 2011-2015, primarily in maritime, land,
aerospace and electronics.

It is estimated that India is likely to spend nearly $80 billion over the next five years on capital expenditures.

There has been a concern that domestic defense production through 2011-2015 would need to expand from $30 billion to more than $70 billion within five years to
achieve the goal of 70% indigenous production by 2015. This would mean that an average 30% growth rate per annum is needed for the defense industry over the next
five years.

“While it is clear that India is seeking a high level of self-sufficiency in delivering its ambitious defense reequipment and expansion program, it is also evident that there will be a high level of reliance on overseas interests
to supply the necessary technology in a number of areas,” says Chandrajit Banerjee, director general of the Confederation of Indian Industry. “Foreign OEMs are now
looking at India as a critical market as well as a potential manufacturing partner.”

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