Hike in FDI limit in defense manufacturing can bring dividends to other sectors not limited to aviation in India, says GlobalData

Following the news that India has raised foreign direct investment (FDI) in defense manufacturing through automatic route from 49% to 74%;

Mathew George, Ph.D., Aerospace & Defense Analyst at GlobalData, a leading data and analytics company, offers his view:

“According to GlobalData’s report, The Indian Defense Market – Attractiveness, Competitive Landscape and Forecasts to 2025, India has been consistently ranked among the leading defense importers worldwide. Between 2014 and 2018, India was ranked as the second largest importer of defense equipment, behind only Saudi Arabia. Against this backdrop, the idea to increase FDI was mooted by the Indian Ministry of Defence back in March 2018 to reduce the defense import bill.

“Now, the move to raise FDI cap will improve local production and thereby push for the defense forces to procure locally. One method to ensure this has been the introduction of a controlled list that can only be procured locally, whether the list and procurements related to it will also be a part of the earlier announcement preventing the government to issue a global tender for contracts below INR20bn (US$26m) is yet to be understood.

“On the other hand, the corporatization of the Ordnance Factory Boards (OFB) must be welcomed by end-users and industry as it is set to make a real difference to how equipment from the OFB can be made competitive. However, this depends on the OFBs standing up to the challenge and embracing these new methods of functioning.

“In the long run, we can also expect the government to push OFBs to perform so that the government will benefit from their listing on the market by being worthwhile buys for potential shareholders. It will be a while before the defense forces of the country will see any benefit from these reforms. But, in the short-term, companies around the world can be incentivized to invest into India, bring the ever needed jobs in to the country, and with the push and convergence of maintenance, repair and overhaul (MRO) facilities in India, we can expect dividends for other Indian sectors not limited to aviation.”

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