The Factsheet Announced 49% FDI in Defence and 100% in Railway

The Union Government on 6 August 2014 approved a proposal to raise the amount of foreign direct investment allowed in India’s defence and railways industries. Under this proposal the government is to increase the FDI limit in the defence industry to 49% from 26% and from nil to 100% in railway infrastructure of the country.

We present here a brief factsheet on this important issue:

                                FDI IN DEFENCE

What is the status of Defence FDI at present?

*        At present 26% FDI allowed through the Foreign Investment Promotion Board (FIPB) route.

*        Clearance from the Cabinet Committee on Security (CCS) is required for FDI beyond 26%

*        The FDI proposals in Defence are approved on a case-to-case basis at present

What would be the new position if FDI in Defence is approved by the Parliament?

*        Up to 49% FDI would be allowed after approval from FIPB

*        Management control of companies receiving these investments must remain in the hands of Indians.

*        Proposals, even those for less than 26%, will require approval from the Foreign Investment Promotion Board (FIPB)

*        Even after allowing 49% FDI in defence, clearances will be given on a case-to-case basis

Why raise in Defence FDI was not being raised?

The proposal for increasing the FDI cap in India’s defence sector had been pending for several years as it was first mooted by the Commerce Ministry during the previous UPA government. However, the then Defence Minister A. K. Antony had blocked it, citing national security concerns.

Why the government is mulling raise in Defence FDI now?

India is at present the world’s largest importer of arms. It imports almost 70% of its military hardware. It, therefore, wants to open up the domestic weapons industry to help boost domestic manufacturing and modernise its Soviet-era military.

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                                   FDI IN RAILWAYS

What is the status of Railway FDI at present?

*        At present FDI in Indian Railways is not allowed

What would be the new position if FDI in Indian Railways is approved by the Parliament?

*        No FDI would be allowed in general day-to-day operations of Indian Railways

*        However, 100% FDI will be permitted in some specialized operations like freight corridor, high-speed train, port and mining connectivity projects, etc.

*        100% FDI in basic infrastructure rail projects will be allowed in most cases. This will include rail projects like gauge conversion, construction of new lines, doubling of new lines and maintenance PPP projects.

Why the government is mulling raise in FDI cap for Railways?

*        The country’s vast railways network has also suffered from years of low investment, turning a once-mighty system into a slow, badly-congested network.

*        It was revealed in the Rail Budget for 2014-15, that the railways spend 94% of revenues on operating costs, leaving next to nothing for investment.

*        Indian Railways is facing a cash crunch of around Rs 29,000 crore annually and allowing of FDI will help mop up resources.