INDIA DEFENCE CONSULTANTS
FOR FDI IN DEFENCE SECTOR ANNOUNCED
An IDC Special Analysis
New Delhi, 06 January 2002
has good news.
CII need to be congratulated for their efforts in pushing this measure
through. It has not been easy but one hopes implementation by the
bureaucrats will be done swiftly. The Intelligence and economic checks
aspects have been taken care of and a three-year lock-in period has been
fixed for transfer of equity from one foreign investor to another.
is very reasonable and IDC had been saying this for most investments. The
arms and ammunition produced by the private manufacturers would be
primarily sold to the Ministry of Defence, which now has a Procurement
Board. The guidelines also set out that smaller quantities could be sold
to para-military organisations and state governments with the Defence
Ministry's approval. This is also reasonable and Para Military forces
should help themselves. Exports have not been mentioned but we guess they
will be routed through GOI channels –– as they have tried in the past.
HMT had tried exports of Defence products and IDC predicts that finally a
Rosboronexport type of Agency may come into play.
Department of Industrial Policy and Promotion (in the Commerce and
Industry Ministry) will sanction licenses for production of arms and
ammunition, but cases involving FDI will be considered by the FIPB
(Foreign Investment Promotion Board) –– which we read is now with PMO
and licenses will be given in consultation with the MOD. IDC is sure MOD
will involve the Intelligence Agencies and the Income tax departments and
bureaucrats will wield a lot of power in this new License Raj, as
majority representation on the Board and the Chief Executive of the
company/partnership firm have to be resident Indians. And defence is big
particulars of the Directors and Chief Executives would have to be
furnished with the applications. The government would reserve the right to
verify the antecedents of the foreign collaborators and domestic promoters
including their financial standing and credentials in the world market.
Precedence would be given to the original equipment manufacturers (OEMs)
or design establishments and companies having a good track record of past
supplies to armed forces, space and atomic energy sectors and having an
established research and development base. This is but natural and as we
pay homage to late Prof Satish Dhawan who built up ISRO, we hope the
private defence industry now permitted will emulate ISRO. The FIPB
procedure in India has improved and consultants are making a killing.
would be a three-year lock-in period for transfer of equity from one
foreign investor to another foreign investor, including NRIs and overseas
corporate bodies with 60 per cent or more NRI stake, and such transfer
would be subject to prior approval of the FIPB and the government and IDC
feels PMO and the NSA will be crucial in the decision making process.
There is no minimum capitalisation for the FDI, the licensing authority
would satisfy itself about the adequacy of the net worth of the foreign
investor taking into account the category of weapons and equipment that
are proposed to be manufactured. There would naturally be no purchase
guarantee by MOD for products to be manufactured, but planned acquisition
programmes for such equipment and overall requirements would be made
available to the extent possible.
has to be more transparency and Singapore’s booklet on Defence Purchases
is a fine start point to eradicate corruption. Import of equipment for
pre-production activity including development of prototype by the
applicant's company would be permitted, while adequate safety and security
procedures would have to be put in place by the licensee once the license
is granted and production commences. SEZs would be ideal IDC feels.
of the manufactured items would be subject to policy and guidelines as
applicable to ordnance factories and defence PSUs while sale of non-lethal
items would also be permitted with prior approval. Self-certification for
quality would be permitted on a case-by-case basis, but such permission
would be for a fixed period and subject to renewal. The DG QA has been
following Quality Assurance procedures and these will need to be improved
with Service participation. The Indian Navy has been doing this for long
because it is technically confident and many a times maintains a Nelsonic
eye on even minor issues on the 80:20 principle. The good news is that the government's
decisions on applications to FIPB for FDI in defence industry sector would
be communicated within a time frame of 10 weeks from the date of
acknowledgement by the DIPP (Department of Industrial Policy and
hails the policy as we have been saying it was long overdue and we
reported the Ordnance Meeting where this was supported by the ordnance
also sees that hordes of Indian Police and Security personnel are going to
New Mexico in USA for training in hostage control. Home Minister L K
Advani is also off to the Big Apple and Washington on 8 Jan to be
followed by Defence Minister George Fernandes on 15 Jan, with big teams.
The Executive Steering and the Defence Technology Groups of
India and USA are to meet in February (just before DEFEXPO) and March
The US Ambassador Robert Blackwill is working hard to push for US Arms sales to India and made pronouncements when USS CARL VINSON visited Mumbai on 18 December 2001 and the Defence Secretary Yogendra Narain was taken on board and he indicated India was going to get what was stopped because of the sanctions.