FM Declares Weapon Import Ban, Higher FDI in Defence Manufacturing

FDI in defence production has been increased from 49 percent to 79 percent. 

2 min read
Workers give final touches to a model of Rafale fighter jet at the Indian Air Force tableaux during a press preview for the Republic Day parade, in New Delhi on 22 January. Image used for representational purposes. 

In a significant revamp of country defence production policy, the government of India on Saturday, 16 May, announced measures to streamline the procurement of weapons and platforms for the Indian Armed Forces.

Three major changes, aimed at the making to achieve self-reliance in defence manufacturing and maintaining the standard of production, were announced by Finance Minister Nirmala Sitharaman on the fourth day of mega reform and relief announcements amid the coronavirus pandemic.

1. Ban on Import of Certain Weapons

Sitharaman announced that India would stop importing weapons that can be produced indigenously. She said the government would notify a list of weapons and platforms for an import ban; this would also allow the import bill to be reduced considerably.

However, the weapons in the import ban list would be purchased from Indian producers only if they meet the standards of the Indian Armed Forces. Stress will also be laid on procurement of spares which are made in India, the minister said.

Before the speed of the coronavirus, India was in the world arm’s market to buy 114 fighter planes and Rs 1,000 crore worth weapons for the special forces.

2. Increase in Foreign Direct Investment

In another significant change in the country’s defence production, the finance minister announced that companies abroad would be able to invest up to a maximum 79 percent in defence manufacturing in India – up from 49 percent. The higher foreign direct investment (FDI) limit on defence manufacturing is under the automatic route, for which government approval is not required, the finance minister said.

3. Corporatisation of Ordnance Factory

As the decision to limits imports had raised concerns on efficiency and quality of supplies. To address the issue, the government has announced the corporatisation of the Ordnance Factory Board, with the finance minister reiterating there won't be privatisation of the board.

She said the aim is to ensure ordnance factories in India are better managed so that they can be listed on the stock market. This step is also aimed to address the concern of board producing substandard products supplied to the armed forces.

This move would put the spotlight on the two defence industrial corridors opened by the government in Tamil Nadu and Uttar Pradesh, with the aim of indigenous defence production.

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