SUBJECT: FOREIGN DIRECT INVESTMENT (FDI) IN DEFENCE
1.1 The Department of Industrial Policy and Promotion has decided to release
Discussion Papers on various aspects related to FDI. In the series of these
Discussion Papers, this Paper is on ‘Foreign Direct Investment in
Defence sector’. Views and suggestions are invited on the observations
made in the enclosed discussion paper, as also on the whole gamut of
issues related to the defence sector, by July 31, 2010. It is requested that
to the extent possible, facts, figures and empirical evidence may be
furnished in the context of the specific observations/suggestions made.
1.2 The views expressed in this discussion paper should not be construed as
the views of the Government. The Department hopes to generate
informed discussion on the subject, so as to enable the Government to
take an appropriate policy decision at an appropriate time.
1.3 Defence being a sensitive and strategic sector, the views of the Defence
Ministry will be taken on board before taking the next steps forward.
FOREIGN DIRECT INVESTMENT (FDI) IN DEFENCE SECTOR
1.0 PRESENT SCENARIO:
India is one of the largest users and importers of conventional defence
equipment. It ranks among the top ten countries in the world in terms of military
expenditure. Its cumulative defence budget (including both-capital and revenue
expenditure) grew at 13.4% CAGR during the financial years 2006-2007 (Rs.
89,000 crore/ US $ 20.11 billion) to 2010-11 (Rs. 147344 crore/ US $ 31.9
billion). Approximately, 40% of this is capital expenditure. According to
estimates, nearly 70% of our defence requirements are met through imports1,
with only 30% being met through domestic production. Government’s stated
aim, as enunciated in Finance Budget 2009-10, is to reverse this trend and
manufacture 70% or more of its defence needs indigenously.
The bulk of the domestic production