India flounders in attracting FDI in defence production, gets only Rs 1.17 crore in 4 years

NEW DELHI: The country has attracted just Rs 1.17 crore as foreign direct investment in the defence production sector under the “Make in India” framework in the last four years despite the NDA government liberalising the FDI policy and abolishing the Foreign Investment Promotion Board.


“FDI of amount $0.18 million has been received in the defence industry sector from April 2014 to December 2017,” said junior defence minister Subhash Bhamre, in a written reply to Lok Sabha on Wednesday.

To put things in perspective, India in the same timeframe has inked 70 “capital procurement” contracts worth over Rs 1.25 lakh crore with foreign armament to acquire radars and missiles from Israel, aircraft and artillery guns from the US, fighters and ammunition from France, rockets and simulators from Russia.

Though Bhamre listed 18 cases of FDI and joint venture proposals approved by the government, the fact remains that the measly FDI amount actually received is a grim reminder of the country’s continuing failure to build a robust defence-industrial base (DIB).

Consequently, India remains stuck in the strategically-vulnerable and embarrassing position of being the world’s largest arms importer, with the armed forces still inducting over 60% of their hardware and software requirements from abroad.

The country has floundered in attracting FDI in defence over the years, with it amounting to less than $5 million during the 10 years of the previous UPA regime, as well as getting the domestic private sector to jump into arms production in a major way.

The NDA government, after coming to power in May 2014, made FDI in defence production one of its key measures to build a strong DIB under the “Make in India” framework.

The policy was revised to allow FDI up to 49% under the “automatic route”, and above 49% through the “government route” with the Cabinet Committee of Security’s approval on a case-to-case basis if it was likely to result in access to modern cutting-edge technology. The FIPB was also subsequently abolished to ease the process of approvals.

But these steps have not led to greater FDI inflows. Several global arms majors say they would need “more management control” of the joint ventures to step up investments and provide top-notch military technologies to India.

Others, however, contend that fledgling Indian defence firms will be crushed if global companies are allowed unrestricted entry into the domestic defence market. “Moreover, most countries like the US have strict export control laws in sensitive military technologies. India will not get what it wants to produce here,” said an expert.

Incidentally, no major 'Make in India’ defence project has actually kicked off in the last three to four years due to lack of requisite political push and follow-through, bureaucratic bottlenecks and longwinded procedures, commercial and technical squabbles, as was reported by TOI in October last year.