NEW DELHI: Even as the finance ministry is taking up the new regime for calculating foreign investment in Indian companies, the ministry of defence has voiced concern that it opens up the possibility of foreigners taking ownership in defence production companies in excess of the 26% allowed now, creating more pressure to modify the policy.
The ministry has argued with the finance and commerce ministries the need for putting safeguards to prevent the abuse of the new norms that do not recognise indirect foreign investment if the investing company is owned and controlled by resident Indians.
Foreign direct investment (FDI) ceiling for defence production is not applicable to services such as defence product design and development. Therefore, companies in this service segment with up to 49% FDI can invest in defence production without their investment being counted as FDI as they are 51% owned and controlled by resident Indians, said a government official, who asked not to be named.
Finance secretary Ashok Chawla told ET that many administrative departments have expressed concern regarding foreign investment making a circuitous entry into restricted sectors.
It is more relevant in sectors that have low FDI cap, such as defence production and not so much in areas where the threshold is high or have no cap at all. The finance ministry is likely to discuss this with the department of industrial policy and promotion (DIPP), the agency responsible for the FDI policy.
The defence ministry���s concern regarding the possibility of breaching sectoral cap can delay engineering major Larsen & Toubro���s plan to have two joint ventures with Germany���s EADS Deutschland GmbH with 24.5% FDI in defence production and a 51:49 joint venture in defence products design.
The company���s proposal is being studied by the Foreign Investment Promotion Board (FIPB), the apex body that clears FDI proposals and deliberates on policy issues.
While examining investment proposals, FIPB combs through all agreements between the joint venture partners to ensure that there are no hidden clauses that vests the decision making power with the foreign partner despite his minority stake.
This will ensure that Indian partners do not act as proxies of the foreign company.
The ministry has argued with the finance and commerce ministries the need for putting safeguards to prevent the abuse of the new norms that do not recognise indirect foreign investment if the investing company is owned and controlled by resident Indians.
Foreign direct investment (FDI) ceiling for defence production is not applicable to services such as defence product design and development. Therefore, companies in this service segment with up to 49% FDI can invest in defence production without their investment being counted as FDI as they are 51% owned and controlled by resident Indians, said a government official, who asked not to be named.
Finance secretary Ashok Chawla told ET that many administrative departments have expressed concern regarding foreign investment making a circuitous entry into restricted sectors.
It is more relevant in sectors that have low FDI cap, such as defence production and not so much in areas where the threshold is high or have no cap at all. The finance ministry is likely to discuss this with the department of industrial policy and promotion (DIPP), the agency responsible for the FDI policy.
The defence ministry���s concern regarding the possibility of breaching sectoral cap can delay engineering major Larsen & Toubro���s plan to have two joint ventures with Germany���s EADS Deutschland GmbH with 24.5% FDI in defence production and a 51:49 joint venture in defence products design.
The company���s proposal is being studied by the Foreign Investment Promotion Board (FIPB), the apex body that clears FDI proposals and deliberates on policy issues.
While examining investment proposals, FIPB combs through all agreements between the joint venture partners to ensure that there are no hidden clauses that vests the decision making power with the foreign partner despite his minority stake.
This will ensure that Indian partners do not act as proxies of the foreign company.
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