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ASSOCHAM calls for setting up defence SEZs, raising FDI cap to 49% Print E-mail
Written by Ganesh   
Tuesday, 28 June 2011
New Delhi: Industry body ASSOCHAM has called for raising the permissible limit on foreign direct investments in strategic defence sector from 26 per cent to 49 per cent for better technology transfers and building domestic capabilities.

The government should also support setting up defence special economic zones to help create an industrial ecosystem for strengthening manufacturing activities in the country, said The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

“Incentives may also be given to establishments in such SEZs to boost export to neighbouring countries,” it said in a set of suggestions for the working group on defence and aerospace industry under the Planning Commission for 12th Five Year Plan (2012-17).

The large defence purchase orders and contracts to foreign original equipment manufacturers have created large offset obligations, churning out huge business opportunities for small and medium enterprises. Offset obligations worth Rs 150,000 crore are to be fulfilled in the next five to six years.

The government may consider an option of providing 25 to 30 per cent reservation to SMEs in defence orders, said vice admiral (retd) P.C. Bhasin who is chairperson of ASSOCHAM national defence council.

Cluster development on public private partnership model with focus on defence, electronics and homeland security manufacturing of equipment and components should be pursued, he said. “A dedicated fund of Rs 400 crore may be created to support research and development work by the private sector.”

ASSOCHAM secretary general D.S. Rawat called for close coordination between the ministry of defence and other ministries like that of communications and information technology which is also making a serious effort in expanding the manufacturing base.

He said raising the FDI limit in defence sector to 49 per cent will allow foreign firms a larger share of risks and profits, and the confidence to transfer sensitive technologies to joint ventures in India.

ASSOCHAM also proposed infrastructure sharing for developing innovative technologies and select products between the Defence Research and Development Organisation and the private sector.

The ultimate goal should be self reliance in defence production rather than large scale imports, it said.

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