FDI In Defense Increased from 49% To 74%; Is It Safe Enough?

Before we jump in to the analysis as to whether is it safe or it isn’t, lets understand what is FDI.

FDI or Foreign Direct Investment is an investment in form of a controlling ownership of a business by a foreign entity. It includes mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra-company loans.

In a recent press briefing, Finance Minister announced that the FDI limit in Defense sector would be raised to 74 percent from existing 49 percent.

The actual FDI limit is 100 percent but if it exceeds 74 percent it would be through government route, else it would be through automated route.

As far as national security concerns, the major investments in defense flow from Mauritius, Singapore, Japan, Netherlands and USA. All of these countries are allies of India. FDI from countries like China, especially in defense is strictly regulated.

Another major announcement was about OBF or Ordinance Factory Board going public. In our opinion, such decisions will enable greater transfer of technology and skills from oversees and enable Indian defense sector to reach its highest potential.