New Delhi, Jun 14 (KNN)  Industry body, Federation of Indian Chambers of Commerce and Industry (FICCI) has welcomed the government's proposal to increase foreign direct investment (FDI) in defence, not only because it would create a base to indigenously design and manufacture defence products but also because it would increase the share of manufacturing in GDP.
 
“Consistent with its support of an aggressive policy towards development and employment via the manufacturing sector, FICCI welcomes the proposal put forth by the Ministry of Commerce and Industry to enhance FDI levels in defence beyond 26 per cent to higher levels up to 49 per cent, 74 per cent or even 100 per cent in exceptional cases, to develop a Defence Industrial Base (DIB), indigenously design and manufacture Defence and Aerospace products tailored to the needs of Indian armed forces, and to create opportunities for employment in the country,” an official release said.
 
While higher levels of FDI were already allowed in the existing policy, on a case-to-case basis, FICCI sees this proposal in the light of increasing the share of manufacturing in GDP to 25 per cent as enshrined in the National Manufacturing Policy.
 
Recognizing the strategic nature of the defence sector, FICCI calls for adequate and mutual strategically beneficial safeguards to be put in place while deciding higher levels of FDI in defence production. 
 
Exceptions allowing FDI even up to 100 per cent should be allowed as exceptions, on case to case basis, in cases such as aircraft engines, advanced missile guidance systems, seekers, production of smart materials, high strength carbon fibre etc, for which investments can be justified only by volumes available through integration with the global supply chain of the OEM's (original equipment manufacturer), it said.
 
Obviously, the current level of seventy per cent for imports in case of defence equipment is not in sync with India's aspiration to be a global super power.
 
FICCI therefore strongly advocates the need for absorption of "know-why" in critical defence technologies without which the aim of substantive self-reliance and higher levels of indigenisation cannot be achieved.
 
“India must therefore make use of FDI limit enhancement to leverage its position as one of the largest markets for defence equipment to achieve this strategic goal. It is important to note that no other country with a strong indigenous technical and industrial base allows the levels of FDI in defence that are being offered by India,” FICCI said.
 
The following approach is therefore recommended for permitting FDI higher than 26 per cent in Defence manufacturing, depending on - the level of technology and "know-why" being transferred by the OEM into the Indian Defence Sector, percentage of committed exports, and integration  into the OEM's global supply chain.
 
 
1)     From 26 per cent to 49 per cent - by  “automatic route.” By ensuring that the OEM Government has pre-cleared key technologies as desired by India.
·       Control and governance in Indian hands.
·       The OEM Company commits to creation of Centres of Excellence (COE) for product designed and developed should be set-up in India
·       IPRs resulting thereof should stay in India.
·       Such companies can be permitted to participate in Buy (Indian) and Buy and Make (Indian) categories of procurement.
 
2)     FDI up to 74 per cent through FIPB Route to be allowed subject to following conditions in addition to the above conditions for 49 per cent FDI:
·       Board members in such JV companies to be Indians /PIO.
·       Indian partner should get integrated into the global supply chain of the foreign OEM,
·       Maximum (> 75 per cent ) manufacturing should be carried out within India
·       Focus should be on co-development and co-production of next generation products
·       Such companies cannot be permitted to participate in Make categories of procurement   
 
3)     100 per cent FDI, in-principle, should be considered only in very specific cases. For this purpose, the following additional conditions should be met:
·       The foreign OEM should establish an OEM funded full-fledged design, development and manufacturing unit in India.
·       Create fully funded Centers-of-Excellence in India for identified critical technologies.
·       Proposes relocating existing production units to India and establishes full-fledged development and manufacturing unit completely funded by OEM.
·       Will employ Indian employees except for few key employees.
·       Such proposals may be considered on case-to-case basis and with approval of competent authority of Government of India including DRDO.
·       Such companies cannot be permitted to participate in Buy and Make (Indian) and Make categories of procurement.  (KNN Bureau)