Page 24 - LECTURETTE TOPICS eBOOK

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Introduction

The government has decided to relax the restrictions regarding FDIs to promote
global defence companies in India to manufacture defence equipment in India and
thus to support the economic development of India with the “make in India” initiative.
This decision angered the most of Indian corporate companies that share a hand in
the manufacture of defence equipment and armoury.
This decision made the Indian companies which manufacture defence goods to
review their standards and plans because FDIs may reduce the dependence of the
government on domestic companies in the production of defence mechanisms.

Real Scenario

• In fact, before June 2016, the foreign direct investments are permitted up
to 49 percent in the defence sector. The remaining control over the project
vested with the Indian stakeholders. The present decision of the
government may reduce the growing opportunities of domestic original
equipment manufacturers or OEMs.
• Under previous laws, the foreign OEMs are required to associate with the
Indian partners to invest in the defence sector. The new rules enable the
OEMs to operate with their original name without the involvement of Indian
companies in their projects.
• The new rules cause heavy competition between the domestic
manufacturers as well.
• Tata Motors Ltd., which involved in defense OEMs, opined in this context
that permission for 100% FDI in defense will create a head to head
competition between the domestic and foreign industries and promote the
chances for exchange of knowledge and enhances the scope for research
and development according to advanced foreign standards and thus
supports the improvement of quality in domestic defense equipment.
• The new rules are helpful to reduce the burden of getting clearances by
the government and ensure rapid progress in the Indian defence sector,
stated spokesperson from the government of India.

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