Narendra Modi govt flexes arms, pushes for high-value exports, 100% FDI in defence

Defence production was opened up fully for Indian pvt sector in 2001, but FDI was capped at 26%.

New Delhi | Published: May 31, 2014 11:07:54 am
India's defence exports in 2010-2012 were just 3 million and former defence minister A K Antony had termed it as ‘woefully meager’. India’s defence exports in 2010-2012 were just 3 million and former defence minister A K Antony had termed it as ‘woefully meager’.

The commerce ministry, as part of its national strategy for local defence production, is likely to give a major boost to hi-tech and high value-added defence exports through incentives in the upcoming Foreign Trade Policy (FTP) for 2014-19.

The Department of Industrial Policy and Promotion is also pushing for 100% Foreign Direct Investment (FDI) in the sector. New defence minister Arun Jaitley said the issue of relaxing the 26% FDI ceiling in the sector was discussed after he took charge. Defence production was opened up fully for the Indian private sector in 2001, but FDI was capped at 26%.

India’s defence exports during 2010-2012 were just $183 million and former defence minister A K Antony had termed it as “woefully meager”.

The BJP manifesto had spoken of “FDI in select defence industries” with a focus on jobs and asset creation, besides increasing private sector participation in the sector and strengthening the Defence Research and Development Organisation.

The new FTP, likely to be announced in August, will have sops for manufacturing exports especially from sectors, including engineering, chemicals, pharmaceuticals, textiles and hi-tech products, in addition to services exports, official sources said. However, defence exports will be one of the new focus areas, the sources told FE.

Though Federation of Indian Export Organisations is pitching for a target of $750 billion by 2019, the commerce ministry feels this will be an “unreasonable” objective if manufacturing sectors, including defence production, are not able to do well and if there is poor demand in markets abroad.

The focus on defence exports is, therefore, to get big-ticket export orders that will not only boost aggregate exports, but will also bring down the twin deficits of trade and current account, the sources said. The proposal is to give more incentives (including duty benefits) for defence exports under Market Linked Focus Product Scheme and Focus Product Scheme with an aim to increase exports and employment, besides investment, in the sector.

The items that are being considered include those for counter-insurgency, counter terrorism and anti-drug trafficking related equipments including equipments for rescue operations, surveillance, communication and night-vision equipments. Besides, exports of helicopters, logistics vehicles, sensors, vehicles for weapon platforms and applications as well as general munitions will also be encouraged.

The focus markets will be Latin American countries such as Chile, Ecuador, Colombia and Bolivia, besides African and Asian countries.

Simultaneously, the plan is to push for removal of Minimum Alternate Tax and Dividend Distribution Tax on Special Economic Zones to encourage SEZs focused on defence equipment production. Also on the government’s agenda is enabling duty-free import of certain inputs for defence exports as well as for research and development in the sector and simplifying licensing procedures for defence production and exports. Besides, steps will be taken to facilitate export of engineering systems for military programs of friendly foreign countries and to bring greater clarity on the classification of defence goods that are exported for better data collection.

Exports had missed the target of $325 billion last fiscal, as shipments grew by just 3.98% over the previous year to $312.35 billion mainly due to a slowdown in manufacturing and fall in demand overseas.

Arun S , HumaSiddiqui | Financial Express

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