FDI thrust continues: defence, rail opened

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FDI thrust continues: defence, rail opened
In a big push to economic reforms, the NDA government raised the foreign direct investment (FDI) cap in defence to 49 per cent and for the first time opened the railways to 100 per cent FDI in rail infrastructure.

The cabinet committee on economic affairs (CCEA) headed by prime minister Narendra Modi decided on Wednesday to open up both defence and railways to foreign investors in a big way.

Commerce and industry minister Nirmala Sitharaman's proposal before CCEA seeking wider foreign participation in both defence and railway sectors is expected to give a leg-up to manufacturing in India and reduce import dependence in these sectors.

Unfazed by roadblocks put up by the Congress-led eight-party opposition to 49 per cent FDI in insurance, the Modi government will make attempts to move bills relating to FDI in rail infrastructure and defence in the ongoing parliament session set to end on August 14.

As per the note cleared by CCEA, all FDI proposals in defence will have to be routed through foreign investment promotion board (FIPB) and cabinet committee on security (CCS), following the raising of security concerns by home minister Rajnath Singh.

The government also put a rider that in all defence joint venture companies, management control will be with Indian partners. The CCEA decision will give a leg-up to about half a dozen Indian companies that have investment plans in a big way across defence production.

Tatas, Reliance, Mahindra & Mahindra, Ashok Leyland of Hindujas, Bharat Forge headed by Baba Kalyani and Pipavav Defence led by Nikhil Gandhi would now be in a position to find foreign partners for their defence foray.

For instance, Reliance Industries (RIL) that reportedly was interested in aerospace engineering on high-end of technology spectrum, may hasten up negotiations with potential foreign partners like American conglomerate Lockheed Martin.

Similarly, Tatas that have committed billions of dollars in defence investments in defence equipment production would be able to find credible foreign collaborators.

Even government-run defence enterprises like Bharat Earth Movers (BEML) will be in a position to float special purpose vehicles for specific defence projects.

Hitherto the UPA government had restricted FDI in defence to 26 per cent with a proviso that any proposal beyond this limit would be considered on a case-to-case basis.

Allowing FDI in defence up to 49 per cent has come much ahead of prime minister Narendra Modi's visit to USA next month. Several US conglomerates are seriously seeking entry into the Indian defence industrial establishment by investing in Indian production facilities.

By allowing 100 per cent FDI in railway infrastructure, the government will give a big push to high-speed train systems, suburban corridors and dedicated freight line projects implemented under public-private partnership (PPP) mode.

Currently, there is a complete restriction on any kind of FDI in the railways projects except in mass rapid transport systems. Foreign investment flows will also help rail modernisation and expansion in a big way.

While presenting his budget, rail minister DV Sadananda Gowda had said that FDI in rail infrastructure was required as internal resources and government funding were insufficient for modernisation and expansion of the rail network.

He also pointed to planned investments worth Rs 9,00,000 crore in railway sector that can get a boost with entry of foreign investors.

With regard to defence, Indian industry bodies have been seeking to increase the FDI limit to 51 per cent to encourage foreign companies’ entry into the sector.

FDI in the defence sector during 2000-14 has been reported to be $4.94 billion while the entire foreign investment flows during the period were pegged at $321.81 billion.

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