Article Posted on : - Jun 17, 2014

NEW DELHI (PTI): Foreign direct investment in defence sector will help in increasing defence preparedness of the country and at the same time reduce dependence on imports, Commerce and Industry Minister Nirmala Sitharaman has said.

She also said that relaxation in policy for FDI in defence would help in saving foreign exchange and in enhancing the country's capacity to produce defence equipment locally.

"...Is it going to be that every year you send this quantum of money outside or is it better that you gradually increase the capability of indigenous producers to make sure that you are able to buy in India enough arms and ammunitions which are helpful for the defence preparedness without sending the money out...," Sitharaman said on Monday.

She said import of defence equipment "drains" foreign exchange reserves and "makes you feel that you are dependent on other countries for your own defence preparedness".

"...this is an area in which you are wanting to promote Indian indigenous production, you wanting to save on that money which goes abroad which is not an investment because if it goes, it's gone.

"Whereas if you invest in buying Indian made goods, you are at least increasing your capacity to produce. So all these arguments are taken on board," she said in an interview to Doordarshan.

However, she added that no final call has been made yet.

In a major policy initiative, the Department of Industrial Policy and Promotion (DIPP) in its draft cabinet note has proposed to raise FDI in defence sector to 100 per cent through the approval route.

The UPA government had pegged FDI in the defence sector at 26 per cent but allowed cabinet committee on security (CCS) to approve proposals entailing higher investments.

In May 2010, the DIPP had rolled out a discussion paper suggesting increase in FDI cap for the defence sector.

India opened up the defence equipment industry to private sector in May 2001, but restricted foreign participation to 26 per cent in this capital-intensive and sensitive sector.

India is one of the largest defence importers in the world with a minuscule component of exports.

It ranks among the top ten countries in the world in terms of military expenditure. India at present imports over USD 8 billion worth of defence equipment and its defence budget is growing at an average of 13.4 per cent annually since 2006-07.