To benefit from FDI in Defence, SMEs will have to invest into R&D: Expert

New Delhi, June 22 (KNN) The private industries in the country have to invest into Research & Development in defence sector if they want to absorb the technology that the foreign companies will bring in India under the new FDI scheme announced recently by the Government, said a defence expert.

India opened up the defence sector allowing foreign companies to own as much as 100% equity in the local defence sector through the government approval route in cases where it is likely to result in access to modern technology. The current foreign direct investment (FDI) regime permits foreign companies to own 49% in Indian units through the automatic approval route.

Talking to KNN, President of Defence and Strategic Industries Association of India, PC Tripathi, said that Defence Research and Development Organisation (DRDO) labs are already engaged with the Research and Development work.

"We need not only the private industry to step up R&D investment to absorb the technology the foreign companies will bring in but also to participate in supply chain of the research which is very critical for DRDO and other organisations to  create intellectual property under defence technology in India," he said.

The president also said that government has increased FDI limit because in 49 per cent, no one was interested to invest. One of the concerns of Foreign Defence supplier companies are protection of their intellectual property. Now this increase in FDI will give them this safety.

When asked about the threat to local companies after the approval of 100 per cent FDI, he explained that there is no threat to local industries in India because no local industry makes products in India except the PSUs.

For this, he said, the PSUs will have to be modernised. The PSUs will have to tie-up with the international companies to get the advance technology and upgradate their existing technology.

“Local industries will be benefitted not immediately but in long run,” he added.

The new rules could mean that Indian companies that were rushing to tie up with OEMs (original equipment manufacturers) in expectation of future business may find that their partners choose to enter the market on their own.

Under the previous rules, foreign OEMs were required to form joint ventures with domestic firms if they wanted to establish a manufacturing base in India. With the amendment, an OEM can independently plan and implement operations in India. (KNN/AR)