The government on May 16 said it will relax foreign direct investment (FDI)  norms in defence manufacturing by allowing 74 per cent FDI under the automatic route with a view to attracting overseas players in the sector. 

As per the current FDI policy, 100 per cent overseas investments are permitted in the defence industry — 49 per cent under the automatic route, while beyond that government approval is required.  

Finance Minister Nirmala Sitharaman said the FDI limit for the sector under automatic route will be raised from 49 per cent to 74 per cent.  

“It will have security clearance and everything else as always,” she told reporters while announcing the fourth tranche stimulus package for the coronavirus-hit economy. 

Earlier in July 2018, the government had relaxed foreign direct investment norms in the defence sector by allowing FDI up to 49 per cent under the automatic route. 

The move was aimed at boosting domestic industry as India imports about 70 per cent of its military hardware. 

The minister also said to promote Make in India in the sector, a list of weapons/platforms will be notified which will not be allowed to be imported. 

“In defence, we need to be self-reliant where we can be. Of course, the armed forces require the best of equipment, they need some of the latest technology-driven equipment which can be imported. But some of those which are produced in India can be bought in India and therefore we have now come to a conclusion that we shall notify a list of weapons and platforms which will be not allowed for imports but we shall have them bought in India. This is done in consultation with the department of military affairs,” she said. 

Every year, she said, this list will be increased because more capacities which come to be recognised and which meet the defence standards, will be obtained domestically. 

Corporatisation of OFB

Sitharaman said that the long pending corporatisation of the Ordnance Factory Board (OFB) has been approved.

“We will corporatise Ordnance Factory Board to improve autonomy, accountability and efficiency in ordnance supplies,” the minister said, while adding that in the near future, the OFB factories could be listed in the markets to bring in transparency in their operations. “Corporatisation is not privatisation,” she added.

Time-bound process for procurement

General Staff Qualitative Requirements (GSQRs) for all weapons and platforms will be honoured but those list of items which get notified can only be purchased from India, she said, adding indigenisation of some imported spare parts will also be given priority. 

For all this, Sitharaman said there will be a separate budget provision for domestic capital procurement and these steps will help reduce the huge defence import bill. 

A mechanism will be established so that defence procurement processes are time-bound. She said a project management unit will be set up and support will be given for contract management purposes. 

“A realistic setting for GSQRs of weapons and platforms will be made because sometimes unrealistic quality requirements are established and quite a lot of time is spent in searching for suppliers who will meet all those requirements. We end up with just one supplier and buying it from just one supplier is not permitted and then you do the entire circle all over again,” she said, adding the government will also overhaul the trial and testing procedures. 

Six airports to be auctioned

The finance minister said six more airports will be bid out for operation and maintenance on public-private partnership (PPP) basis. Also, additional investment by private players in 12 airports bid out in the first two rounds is expected to be around Rs 13,000 crore.

She said more air space will be opened for civil aviation, helping airlines save Rs 1,000 crore in flying cost through reduced flying time and lower fuel consumption. Currently, only 60 per cent of the Indian airspace is freely available.

Restrictions on the utilisation of the Indian air space will be eased in consultation with  the defence so that civilian flying becomes more efficient, she said.

Steps would also be taken to make the country a hub for Maintenance, Repair, and Overhaul (MRO) of aircraft, she said adding a tax on MRO operations had already been cut in March. Aircraft component repairs and airframe maintenance to increase from Rs 800 crore to Rs 2,000 crore in three years. It is expected that major engine manufacturers in the world would set up engine repair facilities in India in the coming year. Convergence between defence sector and the civil MROs will be established and this will lead to maintenance cost of airlines to come down.

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