Indian Industry Criticizes Efforts To Boost Foreign Investment

Aerospace Daily
July 27, 2010

FUNDING & POLICY

NEW DELHI – As foreign vendors await an increase in the current cap of 26% in foreign direct investment (FDI) in the Indian defense sector, the native industry has raised its voice emphatically in opposing any increase.

The industry has also called for a level playing field in being permitted
to apply for tenders in every defense project. There are currently certain levels of sensitive areas that only government-owned companies are permitted to bid against.

Labor unions and more than 40 ordnance factories owned by the government would be in jeopardy if the private sector was allowed to bid for all projects, a government

"The purpose should be indigenization,” says the Federation of Indian Chambers of Commerce and Industry (FICCI), an organization that represents private companies. “In the U.S. there is a technology denial regime” to sharing know-how abroad, says Amit Mitra, the federation’s secretary general.

At the recent Washington summit between President Barack Obama and Indian Prime Minister Manmohan Singh, they referred to each other as “strategic partners.” But of 16 valued technologies, the U.S. denies India 10, Slovania three-four and Germany two-three, according to Mitra. “Besides, [better indigenous] technology may not always result by  raising equity to 49%; indigenization will not [always happen],” he adds.

Despite the cap in investment, FICCI says the defense sector has attracted investments from original equipment manufacturers (OEMs) including BAE, EADS, Sikorsky and Lockheed Martin.

However, foreign vendors say these investments are not in the high-end technology sector that India has said is its priority. “For technology transfer, the OEM will require that it needs a bigger stake in the equity of a joint venture and be involved in board decisions,” an official says.

“The current policy is not capped and allows higher percentage on a case-to-case basis … 26% is a good start … Studies indicate that post 9/11 there is a global trend to restrict FDI in this sensitive area. We have to be cautious in moving forward,” Mitra says.

The government recently rejected BAE and EADS in their request for increasing equity with Indian partners.

“Empowerment of the Indian private sector must be taken up. It is clear that (even in exceptional circumstances) the cap should not go beyond 49%. This is a sector
that needs to develop indigenous capabilities over the long-term … It is a totality of policy that has to be driven forward,” Mitra says.

Mitra also called for a scheme to foster a Technical Development Fund for the Small and Medium Enterprises.
- Neelam Mathews