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Draft defence production policy aims to raise FDI cap in niche tech to 74%

Draft defence production policy aims to raise FDI cap in niche tech to 74%

Context:

A draft defence production policy put out by the government proposes to increase the foreign direct investment (FDI) cap in niche technology areas to 74% under the automatic route, in a bid to boost local manufacturing and catapult India into the league of countries housing top defence and aerospace industries.

Highlights:

  • At present, the FDI cap for the defence sector is 49% under the automatic route for all categories.

Objectives of the policy:

  • To create an environment that encourages a dynamic, robust and competitive defence industry, as an important part of the Make in India initiative.
  • To facilitate faster absorption of technology and create a tiered defence industrial ecosystem in the country.
  • Reducing the “dependence on imports” to “achieve self-reliance”.
  • India is currently the top importer of defence hardware in the world (according to the Stockholm International Peace Research Institute)
  • India hopes to achieve a turnover of Rs1.7 trillion in defence goods and services by 2025.
  • Becoming an arms exporter to the tune of Rs35,000 crore in defence goods and services by 2025.
  • to transform India into a “global leader in cyberspace and AI (artificial intelligence) technologies

Background:

The government is targeting achieving self-reliance in the development and manufacture of fighter aircraft, medium-lift and utility helicopters, warships, land combat vehicles, autonomous weapon systems, missiles, guns, small arms, ammunition, explosives, surveillance, electronic warfare and communication systems and night fighting equipment.

How to achieve?

  • Simplifying procedures for private firms to enter defence production: liberalize the regime by issuing licences in 30 days and pruning no-go areas to a small ‘negative list’ for licensing.
  • Do away with capacity assessment, except for critical projects. It will introduce earnest money deposits and performance guarantees as safeguards for others.
  • With regard to offsets: setting up an ombudsman for resolving all such claims
  • Taxation: rationalization of taxes on import of capital goods for services and inputs for defence and to prevent inversion of taxes.

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