Antony against hike in defence FDI cap

Defence Minister A K Antony stood firm and held on to his ground to halt the raising of the cap on foreign direct investment (FDI) in the defence sector up to 49 per cent, which he opposed sternly at a meeting of senior Congress ministers here on Tuesday.

In the meeting chaired by Prime Minister Manmohan Singh, Antony conceded that the cap could be raised only if it brought critical technologies to India.

“When FDI beyond 26 per cent is likely to result in access to modern and state-of-the-art technologies into country, decisions can be taken to allow higher FDI on a case-to-case basis by the Cabinet Committee on Security,” Antony had said in a letter written to Finance Minister P Chidambaram and Commerce Minister Anand Sharma on July 1.

“The Ministry of Defence (MoD) does not support raising the FDI limit from 26 per cent to 49 per cent,” Antony further said in the letter.

He stuck to the same position at the crucial meeting. “The MoD is also not in favour of Foreign Institutional Investment through portfolio investment in this sector given the strategic and sensitive nature of the defence sector. After due deliberation, our view is that FDI cap should remain at 26 per cent,” he said.

Though there was pressure on Antony to allow the raising of the of FDI limit in defence up to 49 per cent for attracting foreign arms companies to set up large-scale units in India, the minister was of the opinion that all such approvals should be subject to Cabinet Committee of Security clearance and would only be for “state-of-the art technologies”. The defence ministry will decide what are those critical technologies.

The defence minister, who is number two in the UPA government, responded after he received two correspondences from commerce and finance ministries on May 9 and June 19 in which they argued in favour of hiking the FDI cap in defence.
All FDI decisions now will have to be vetted by the Union Cabinet and in some sectors like insurance, by Parliament. NCP supremo Sharad Pawar – UPA ally and former defence minister – was absent in Tuesday’s meeting.

The defence minister cited the example of telecom sector, where FDI regime was liberal but technology flow was limited. “Even in the civilian sector, higher FDI has not necessarily translated into increased flow of technology,” he said.

“Military technologies are the most guarded technologies. Every country seeks to build and preserve its competitive advantage in its field. It’s not likely, therefore, that increasing FDI limit will result in an inflow of technology in our country,” he said. The defence ministry on Wednesday published the defence procurement procedure-2013, which, it hopes, would expedite the procurement process besides boosting indigenisation and creating a level playing field for the private sector.