21st March, 2016 (MAINS)


Q1. Foreign direct investment in the defence sector is now said to be liberalised. What influence this is expected to have on Indian defence and economy in the short and long run?
[12.5marks/2014/GS-3] 200 words.

Please write answer in the comments section.

  • Aniruddh Shrivastava

    Impact of Foreign Direct Investment norms in defence sector by allowing FDI up to 49 per cent under automatic route:

    On Economy – No doubt, FDI will enable India to reduce its dependency on foreign countries for defense products. Also, India export defence equipment to 22 other countries.It will minimize the wide gap of export and import. Theoretically,an increase of Foreign Exchange Reserve can be observed. Employment generation and Infrastructural development are another derivative profits.

    On defence – Every country wants its defence system and structure technologically advanced.Transfer of advanced technology might be utmost importance for India. 49% FDI means that the government still maintains the decision making required to take the industry/segment into the desired direction with inputs being provided by the private investors.

    However,part of this problem is linked to an ongoing debate about whether 49 per cent is actually enough given that the limit is designed to ensure that control of the venture remains with the Indian companies. Usually, Foreign firms are unwilling to transfer high-end technology unless the cap is increased to a level above 50 per cent (and perhaps significantly more), because it simply doesn’t make business sense.

    • http://shashidthakur.com/ Shashi Thakur

      Good way to explain the answer. Nice way to end the answer too.

      • Aniruddh Shrivastava

        Criticism is essentially and equally required from your end.