By - King Stubb & Kasiva on November 11, 2023
FDI or Foreign Direct Investment refers to any investment made by an individual entity or company not owned, operated or located in the country where investment is made. Therefore, any monetary investment from an individual entity, firm, company, body of individuals or association of persons into a foreign country is called Foreign Direct Investment.
In a recent notification issued by the Central Government of India and the concerned departments, India has given approval to 100% Direct Foreign Investment for the first time in Indian history in defence departments. Through this permission, a Sweden based entity Saab has been given the permission and approval to establish a system for manufacturing rockets for India. According to a report, a proposal of Rs. 500 Crores was given for the same in order to establish the facility.
In India, according to a recent notification by the Central Government, an upper limit of 74% has been set in order to determine the Foreign Direct Investments in the areas pertaining to defence through an automatic route. However, in order to exceed the limit already set for the Foreign Direct Investments, clearance from appropriate authorities has to be taken on case-to-case basis. However, since the year 2015 when the FDI limits were relaxed for the first time in the country, no foreign entity has been successful in obtaining an approval of 100% in terms of investments from overseas.
The Swiss entity – Saab FFV India which has been granted the approval to produce and manufacture the latest generation of “Carl – Gustaf M4 systems”, which is a rocket model in a facility in Haryana shall also include advance features including sighting technologies, carbon winding systems, technical sighting etc., and shall be of immense utility for the Indian Armed Forces. Additionally, it has also been planned that the same shall also be available for export outside the borders of India once adequate number of such rockets have been manufactured to meet the domestic demands of Indian forces, paving the way for increased revenue for the Indian government.
Various stakeholders of the Indian economy including defence manufacturers, government officials and departments, including the CEO of the Saab FFV India have welcomed the decision of the Indian Government to allow the projects to be funded in entirety by foreign sources which would also lead to the advancement of the “Make in India” initiative of the Government of India. Moreover, in the upcoming years, an increased and expansive regime of manufacturing defence equipment through an efficient and securely funded system would also be promoted which could lead to strengthening the military advantages of the country along with enabling the government to focus on the priority areas set by the government. With an already funded system of defence equipment, the government shall also be enabled to focus on key areas of governance such as healthcare, education, employment etc., while having to spend a little less on the defence sector.
The previous records of Saab India have also showcased that the entity has recorded impressive profits in the past few years along with a huge demand for its goods and services in the global market, which have consolidated and solidified its position in the past few years globally. Apart from financial commitments, there is also a huge diplomatic impact of the arrangement wherein Indo – Swedish relations in the defence sector can be strengthened leading to less dependence of India on other major defence manufacturing giants such as USA, Japan and Russia. Moreover, with the solidification of Swedish manufacturers in the Indian markets, long term defence strategies can also be formulated which shall establish India’s status as one of the major defence manufacturers across the globe.
India’s need in the present decade is not to completely depend upon international manufactures to meet its domestic demands in numerous sectors but to establish its domestic industries into competent houses of production which can deliver promising results. With the advent of “Make in India” scheme, there has been an increased emphasis on producing goods and services domestically to enable a positive balance of payments network across the country.
With the new FDI norms which have enabled the Swiss entity to invest 100% in the Indian Defence Sector’s selected arenas, new investment opportunities shall also be created which shall update the previous FDI norms in the country that allowed a cap up to only 74% investment by foreign entities in India while no entity was allowed to invest higher amounts. In the context of this updated scheme, more entities shall also be motivated to invest in India leading to strengthening of the country’s global standing and position in the country.
Defence, being a strategic sector shall also benefit from increased investment due to better availability of technical knowledge, prompt availability of resources and facilities which shall also enable the country to secure its interests while enabling it to focus on exports and other areas of production.
India’s partnership with Saab and Advanced Weapons and Equipment India Limited (AWEIL) shall also open doors to more strategic partnerships and economic improvements in the future.
Currently, India allows only 74% FDI in the defence sector under the automatic route. Beyond that, clearance can be obtained on a case-by-case basis. However, the clearance rules were relaxed in 2015, still, no foreign firm was able to get permission for 100% FDI in defence
FDI in defence industry is indeed essential because most defence products involve a relatively high level of technology and this technology gets transferred only if the foreign partner has a long term stake in the company. The aim of seeking FDI by India in its defence sector may be to get both funds and technology.
Historically, Maharashtra, Karnataka and Gujarat are the highest recipients of FDI inflows. These three States have cumulatively received over ₹10-lakh crore in FDI equity, accounting for 68 per cent of the country's total FDI inflows between April 2000 and June 2023