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Deal fuels defence FDI debate

New Delhi, Sept. 24: A government decision to relax the 26 per cent FDI cap in defence for a India-Russia joint venture has stumped industry players.

Many in the defence industry see the 50:50 joint venture between Hindustan Aeronautics Limited and Russia’s Rosoboronexport for a transport plane as a precursor to new FDI norms, which the US and European embassies have been lobbying ahead of President Barack Obama’s visit to India.

HAL-Rosoboronexport in the Rs 2,900 crore venture will develop a prototype within 51 months after starting work and make the plane in six years. The venture has been categorised as a defence venture, though the defence forces as well as cargo airlines will use the plane.

The industry ministry had advocated FDI of 74 per cent in defence, while a section of the bureaucracy had even supported 100 per cent FDI.

Indian companies in the industry such as the Tatas, the Mahindras and L&T had, however, bitterly opposed such a blanket relaxation, favouring FDI till 49 per cent.

Amit Mitra, secretary-general of Ficci, told The Telegraph, “As a chamber, we had formulated a calibrated policy which supported 26 per cent FDI in defence.”

He said Ficci supported 49 per cent FDI as a special case only if the joint venture ensured genuine technology transfer and undertook a localisation programme.

The cabinet will take up Mitra’s note — along with suggestions by others — which argues that countries such as US, Germany and France do not allow FDI in defence.

“What we pointed out was that FDI and transfer of technology, which is what India is looking for, are rarely directly proportional, so raising FDI is no guarantee for the transfer of technology,” Mitra said.

Industry believes India will continue to attract investments regardless of FDI limits. Mitra’s note says India and China “are the only two countries where the spending on new defence platforms and systems will continue to grow in the post–global economic crisis period.”

Supporters of 74 per cent or even 100 per cent FDI say foreign investors will set up units in India that should lead to cheaper prices of defence equipment, secure supplies and steady jobs for Indians.

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