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FDI cap in defence may be hiked
March 10, 2008: The government may relax the foreign direct investment (FDI) cap of 26% in defence sector to facilitate co-development of multi-role transport aircraft by Hindustan Aeronautics (HAL) in cooperation with Russian firm Rosoboronexport. The Russian company wants to hold at least 50% stake in the joint venture and the current FDI ceiling comes in the way of such a tie-up.
The defence ministry has sought the Cabinet's approval for increasing the existing FDI cap to 50% in defence production. All foreign firms dealing with defence products do not want to be minority partners and most of them want to keep 51% stake. The current 26% ceiling acts as an impediment in all such cases.
In case the Cabinet clears the defence ministry's proposal, it would pave the way for HAL and other Indian firms to form a 50:50 joint venture with foreign companies like Rosoboronexport. The proposed JV envisages design, develop and production of medium transport aircraft by the Indian and the Russian agencies. It is expected to produce 145 aircraft for Russian and Indian air forces.
Source: Economic Times