“Make in India” initiative aims at promoting India as a global hub for manufacturing design and innovation, to invite both domestic and foreign investors to invest in India. The initiative is aimed at creating a conducive environment for investment, development of state of the art and efficient infrastructure, opening up new sectors for foreign investments and forging a partnership between government and industry. Defence manufacturing is one of the 25 sectors identified under 'Make in India' initiative. Although certain measures have been taken to remove the hurdles for Indian companies, but concerns remain.
The government raised the FDI limit to 49 percent from 26 percent in July 2014, in defence sector. FDI inflow in other sector combined has increased by about 29 percent during the period October 2014 to December 2015 (15 months after 'Make in India') compared to the 15 months period prior to the launch of 'Make in India'. Post raising the limit the equity inflow of about Rs. 32 crore (US$ 5.33 Million) has been received in the Indian Defence Sector from April 2000 to September 2015, which in fact is miniscule. The rules restricting foreign ownership in the Indian defence sector to 49 percent, the business case for high-tech transfer to India becomes more compelling if foreign OEMs are allowed to have adequate equity and management control in the joint venture in line with the associated risks. Technology is the key to any industry and the unwillingness of large defence companies to transfer state-of-the-art technology without majority stakes in their Indian subsidiaries is creating the hurdle for them. Encouraging foreign manufacturers to setup bases in India will provide a platform for transfer of high-end technology and also facilitate domestic manufacturing.
There is scope to reconsider the issue, as it will help creating capability in the sector. In coming years India could be an attraction for defence manufacturers around the world because of its low cost manufacturing base and emerging of skilled engineers. The needs for defence equipment are rising due to increase in threat but the power to purchase is shrinking due to inflation. Many foreign manufacturers are eying Indian defence market due to its rising demands and favorable conditions to manufacture items in India.