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India planning to raise FDI cap in defence sector

The Govt aims to procure 70 percent of defence items from indigenous sources by 2010.

NEW DELHI (BNS): The Indian Government is mulling to further open up its defence sector by increasing Foreign Direct Investment (FDI) limit from the present 26 percent to 49 percent.

The Centre is likely to issue a notification to raise foreign equity in defence production by this year end, a senior defence official was quoted as saying in an agency report.

The Economic Survey for 2008-09 has recommended 100 percent FDI investment in high-technology defence products.

“Even though the suggestion in the Economic Survey has little legal implications, it has indicated a marked favour among the defence planners for an increase in the FDI limit. A notification in this regard is to be expected by the end of this year,” the official said.

He said that though India opened its defence sector for private players in 2001, there has not been any major capability enhancement in the private sector.

The report, quoting industry sources, said that the Government has set 2010 as the deadline to procure 70 percent of defence items from indigenous sources.

To achieve this target, it is primarily relying on private players and an increase in the FDI cap would help in this respect.

The raise in FDI level will also result in a healthy competition between private defence firms and public sector undertakings, the report said.

Since India’s expenses on importing defence products are estimated to touch a whopping $30 billion by 2012, this will certainly give a fillip to private players in the industry.

Moreover, the defence offsets policy is expected to bring in $10 billion during the 11th Five-Year Plan (2007-12), the report added.

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