India hikes foreign investment limit in defence manufacturing⁠— and it will create a list of banned imports

• The FDI limit for defence has also been increased from 49% to 74%.
  
• The import of certain weapons and platforms is going to be banned.
  
• Nirmala Sitharaman also emphasised that ordnance factories will be corporatised, and not privatised.
  

In a bid for ‘self-reliance’ Nirmala Sitharaman announced that the import of certain weapons and platforms is going to be banned. On the flip side, the FDI limit for defence has also been increased from 49% to 74% with Sitharaman assuring viewers that safeguards will be put in place to protect a sector as sensitive as defence.

Banning the import of defence equipment
“The import of this set of equipment shall not be allowed, it will be banned,” Sitharamn said during the fourth instalment of announcements around India’s ₹20 lakh crore stimulus today, May 16. Instead, the armed forces will now have to look to local manufacturers — or at least companies that have set up manufacturing bases in India — in order to meet their requirements.

A list will be issued, but as now, she hasn’t specified exactly which defence equipment will be taking a hit — and it’s going to increase every year. “Every year this list will be increased as more capacities are recognised, which meet the defence standards, and they will be obtained from India,” Sitharaman explained.

In addition to banning the import of weapons, import spares will be used for indigenisation of manufacturing and the budget will include separate provisioning for domestic capital procurement.

"Corporatisation, not privatisation"
The Ordnance Factory Boards under the Military of Defence, which engage in research, development, production, and testing of defence equipment will also be corporatised. “Corporatisation is not privatisation. We want them to be better managed, and we also eventually hope that they will get listed in the stock market,” said Sitharaman.

This means that ordinary citizens will be able to buy their shares, and the boards, in turn, will be able to raise money from the market.

Rehauling defence quality requirements
Even though she said that the equipment will meet the defence's general staff qualitative requirements (GSQR) — even those requirements are going to see an overhaul.

“Because sometimes unrealistic quality requirements are established. Quite a lot of time is spent searching for suppliers who will meet all those requirements. You end up with just one supplier. And buying it from just one supplier is not permitted. And, then you do the entire circle all over again,” said Sitharaman. Then again, not meeting those requirements, has — at times — led to accidents as with HUL’s Dhruv choppers, in the past.


Even the trial and testing of weapons and platforms won’t be the same anymore in a bid to make the process faster and more efficient. “Yes, we understand, India as a country will have different climatic and geo-spatial requirements — tropical, coastal, Himalayan, high-altitude and everything else. But we still need to be far more efficient,” justified Sitharaman.


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