| FDI in defence may go up to 100% if CEO is Indian |
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New Delhi, 7 August Global defence equipment majors such as BAE Systems and Lockheed Martin could set up manufacturing units in India and bring in foreign direct investment ( FDI) exceeding 49 per cent, provided the company's chief executive officer ( CEO) is Indian. As the objective was to let only serious players enter the market, the defence FDI policy approved by the Cabinet on Wednesday categorically stated investee companies should be self- sufficient in product designing and have maintenance and life cycle support facilities for the products they manufactured here, said a senior department of industrial policy and promotion ( DIPP) official. The Union Cabinet had approved an increase in the composite foreign investment cap in the defence sector from 26 per cent to 49 per cent. For investment exceeding 49 per cent, the Cabinet Committee on Security ( CCS) will clear applications on a case- by- case basis. "It could go up from 49 to 100 per cent, depending on modern and state- of- the- art technology, with the approval of the CCS," said the DIPP official. The CCS might consider such proposals only in rare cases in which original equipment manufacturers such as BAE Systems, Lockheed Martin, Airbus Group and Sikorsky intend to set up manufacturing units here. This is aimed at ensuring only top defence original equipment manufacturers, with robust and proven track records, enter the market, with large- scale investment proposals. The government is hopeful this will not only lead to more manufacturing facilities in the country, but also ensure the life cycle of products is catered to by foreign companies. The CCS will see to it that the management and control remains with Indian companies in case the FDI exceeds 49 per cent, more so in case it is more than 51 per cent, on a case- by- case basis. The official said in these cases, the CEO had to be Indian. However, experts say subjective norms such as modern and state- of- the- art technology, self- sufficiency in product designing and maintenance and life cycle facilities will be hurdles to attracting FDI. Amber Dubey, partner and head of aerospace and defence, KPMG in India, said, "Subjective conditions such as local design, maintenance repair and overhaul, lifecycle support facility and state- oftheart technology run the risk of interpretation, delays, misuse and litigation. Once an original equipment manufacturer wins a competitive tender, market forces will force these to be transferred to India in stages." Putting onerous preconditions ended up discouraging serious investors, Dubey said, adding the government could, instead, bring in practical checks and balances that would help build a strong defence industrial base in India through 10- 15 years. "The CEO has to be an Indian national by default, from the perspective of national security and individual accountability. It would be practically difficult to get a CEO of foreign nationality extradited to India and prosecuted in case of an adverse event," he said. Officials said all foreign institutional investment up to 24 per cent would be allowed under the automatic route. The DIPP official said proposals related to FDI exceeding 26 per cent would be approved on a case- to- case basis, apparently due to " national security concerns, as it ( defence) is a highly sensitive sector". Since the Indian defence sector was opened to private companies in 2001, barely $ 5 million of FDI has flowed into it, according to official statistics. FOREIGN FRONT |100% FDI in rare cases in which original equipment manufacturers intend to set up manufacturing units in India |Move will lead to more manufacturing facilities in the country |It will ensure the life cycle of products is catered to by foreign companies |
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ANUSHA SONI & NAYANIMA BASU New Delhi, 7 August With the Union government clearing the way for foreign direct investment ( FDI) in the railways, the Railway Board is devising a plan for operations, maintenance and construction projects. The ministry is in the process of readying a strategy to suit the diverse range of projects, and the minimum requirement for private entities, according to a senior official. The draft of a sector- specific policy is ready. It is expected to have some stringent conditions for Chinese companies. They might not be allowed in projects involving border and sensitive areas, officials from the department of industrial policy and promotion told Business Standard. This was needed for getting the home ministry to agree. Railways Minister Sadananda Gowda tried to assuage critics by stating on Thursday that FDI would not be allowed in operations. "( It is) only in infrastructure and other areas," he told reporters outside Parliament House. He admitted there would be a wait of a few months to see whether foreign investment would be attracted. The government has refrained from making any official communication so far, leaving industry guessing. Despite the ministers statement, officials felt FDI would be invited in the operation of high speed rail and dedicated freight corridors. The biggest change is in the ministrys approach. It is now ready for flexibility in contractual conditions. The railways will informally consult the private sector and finalise the model concession agreements, said the official. " We want to get maximum private investment, whether foreign or domestic, into rail projects. This time, the ministry is keen to listen to the private sector about what kind of projects interest them," said a senior official, on condition of anonymity. The idea is to make the process more dynamic, though private companies are sceptical the 2012 policy notified by the ministry with various models such as annuitybased and build- operatetransfer will continue to serve as the guiding principle to frame model concession agreements, with clear concession periods and revenue sharing agreements, say officials. The government has so far had public- private partnership (PPP) projects implemented by creation of a Special Purpose Vehicle or by creating a special purpose company for gauge conversion and last- mile port connectivity. As for private entry into said a private player, also project monitoring and lack of amodel concession agreement. These led to an additional financial burden was ₹ 128 crore. A further ₹ 218 crore was lost due to delay in project implementation. Draft ready of sector- specific policies; Gowda reiterates no entry in operations but officials say this might not be rigid; private sector to be consulted before policy finalised PRESS TRUST OF INDIA New Delhi, 7 August A day after approving foreign direct investment ( FDI) in railways and defence, the government on Thursday said foreign investment in railways will help in strengthening infrastructure and asserted security will not be compromised. Commerce and Industry Minister Nirmala Sitharaman said the Cabinet had taken the decision to ease the FDI policy in those areas of railways that are not going to affect security and sovereign authority of the sector. "So, overall the control would be with the railways, ownership being with the railways and essential operations being kept with in the railways. Getting FDI, we thought would ( help) in speeding up lots of handicaps which the railways is facing because they are unable to finance that and therefore it was taken as a conscious decision," she said. The minister said all security- related concerns raised by the home ministry have been taken care of by the policy. "There are factors of security, factors of our concern which will be kept in mind (before clearing any proposal). It is not going to be asimple walk in, put the money and build. Obviously there are processes, there are ministries which look into it," she said. The home ministry had raised concerns with regard to rail infrastructure in border areas, particularly investments proposals from China. According to estimates, Indian Railways is facing a cash crunch of around ₹ 29,000 crore and allowing of FDI will help mop resources. About FDI in defence sector, the minister said control will be there in the hands of Indians. "If it is state- of- the- art or there are going to be high technology involved, the Cabinet can always take a call that time but that is going to be an exceptional case rather than a regular flow of
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