By Ritu Sharma
New Delhi, July 14 (IANS) India is expected to issue by the end of this year a notification to increase foreign equity in defence production to 49 percent from the current 26 percent, a senior official said.

This follows the Economic Survey for 2008-09 tabled in parliament July 2 that said that 100 percent foreign direct investment (FDI) should be permitted for high-technology defence equipment.

“Even though the suggestion in the Economic Survey has little legal implications, it has indicated a marked favour among the defence planners for an increase in the FDI limit. A notification in this regard is to be expected by the end of this year,” a senior defence ministry official told IANS on condition of anonymity.

Experts say the current level of FDI at 26 percent restricts companies from investing due to the limited economic returns.

“Despite opening up its defence sector for private participation in 2001, there has not been any major capability enhancement in the private sector,” the official added.

According to industry sources, the government has targeted 2010 to achieve 70 percent procurement of defence items from indigenous sources.

For achieving this target, the government is mainly relying on private players. The increase in the FDI limit would help in this respect.

A vibrant defence industrial sector would enhance security of supply and upgradation of products within India’s industrial base and secure supply of arms and ammunition.

Also, an increase in the FDI limit would help private defence firms compete in a level-playing field with the public sector undertakings.

The hike in the FDI limit would give an impetus to private players as India’s expenditure on importing arms, which soared to $25 billion (Rs.1 trillion) since the Kargil war of 1999, is estimated to reach $30 billion by 2012.

Moreover, the defence offsets policy is expected to bring in $10 billion during the 11th Five-Year Plan (2007-12).

Every foreign firm involved in India’s defence deals is required to reinvest in India 30 percent of the value of goods or services provided.

(Ritu Sharma can be contacted at ritu.s@ians.in)