Need for FDI in defence sector
FDI is not just a question of getting funds, but access to the latest technologies. FDI pre-supposesa long term commitment and lasting relationship between the foreign and local enterprise. FDIsets in motion a chain reaction wherein FDI upgrades local technology which, in turn, attractsmore FDI with higher technology and the cycle goes on. This is of vital importance to thedefence sector which is highly capital intensive and undergoes rapid obsolescence of technology.The collaborations of public sector utilities or private sector companies with the foreigncompanies will lead to growth of cut throat competition in the industry, leading to production of state of art defence equipment. The major problem in the indigenous defence manufacturingunits in india is the lack of adequate technology needed for repair, modernization or upgrade of the equipment. The introduction of foreign giants in defence manufacture will tackle suchdrawbacks with ease. Other than the increased Àow of funds from a foreign source, greater FDIleads to more employment opportunities for the local population. It also means that taxes andother revenues will Àow back to the local economy. A large share of Indian foreign exchangegoes towards defence purchases. Allowing more FDI in defence would result in significantsavings in foreign exchange, as more foreign companies will establish defence industries inIndia. Thus, the introduction of FDI will lead to more efficient, indigenous and self-reliantdefence sector, capable of producing high standard modern weapons of warfare.
FDI regulations in defence sector
RBI has issued
Foreign Exchange Management (Transfer or issue of security by a personresident outside India) Regulations, 2000
(hereafter referred to as the µ
FEM Regulations, 2000
Section 5 of the µFEM Regulations, 2000¶
provides that a person resident outside India (other than a citizen of Bangladesh or Pakistan or Sri Lanka) or an entity outside India, whether incorporated or not, (other than an entity in Bangladesh or Pakistan) , may purchase shares or convertible debentures of an Indian company under Foreign Direct Investment Scheme, subjectto the terms and conditions specified in
Schedule 1 of the µFEM Regulations, 2000¶.