Government may hike FDI ceiling in defence sector: Sharma

The government is weighing the pros and cons of raising the FDI limit in defence production with the long-term objective of making India a major player in the sector, commerce and industry minister Anand Sharma said on Monday.

Sharma told an Assocham function in New Delhi that the government is looking at the "long-term interest in ensuring that India has technologies and becomes a major manufacturing place" for defence equipment.

He said the "sensitivities" of the defence establishment would be taken into consideration before a decision is taken. Different agencies, including the ministries of defence and finance, the department of industrial policy and promotion, and the planning commission, are debating the issue, he added.

India permits 26 per cent foreign direct investment (FDI) in defence manufacturing, an area of growing interest for the domestic private sector, which is demanding that 100 per cent FDI be permitted. Major industrial groups like Larsen and Toubro, Tata, Mahindra and Punj Lloyd are already engaged in different defence-related businesses.

Of the total defence allocation of Rs1,47,344 crore for 2010-11, a large chunk of Rs60,000 crore has been earmarked for capital expenditure.

While the country has a large domestic defence manufacturing base, mainly in the public sector, the government sources equipment worth Rs30,000-35,000 crore a year from abroad for the world's second-largest 1.5-million-strong defence force.