Regressive foreign direct investment (FDI) policy of the government has hurt Indian defence industry, the Federation of Indian Chambers of Commerce and Industry (FICCI) has said.
In a communication addressed to the secretary of Department of Industrial Policy and Promotion (DIPP), the industry body highlighted the issues affecting defence industry, in view of the release of the consolidated FDI policy circular of 2014. The new circular is effective from April 17, 2014.
FICCI has argued that a blanket ban on investment by foreign portfolio investors, FDIs and FIIs in listed Indian firms, where defence business is just one of the business verticals will not be a practical view in the current corporate as well as regulatory structure.
"With the implementation of this circular, no listed companies will be able to continue its defence business as it will be impractical to stop FIIs to invest in large conglomerates or group holding companies," said A Didar Singh, secretary general, FICCI.
"It is not feasible for any corporate to stop active trading of their stock on recognised stock exchanges as long as the portfolio investments are within limits defined under Schedule 2 of the portfolio investment scheme," Singh said.
"The only option for the corporates is either close the defence business or de-list from the stock exchanges. Both the solutions do not seem to be warranted in the interest of vibrant defence industrial base in country," he added.
While FICCI has welcomed periodic revision in FDI policies to keep pace with economic scenario of the country, it said the new policy has raised questions over survival of the sector.
FICCI believes that the policy seem to have been inadvertently applied the norms meant for control and governing of the defence joint venture companies specifically created by Indian Industrial houses, either private or public, to the parent companies, widely held by Indian public and Financial Institutions.
"FICCI would like to point out that the norms meant for such specifically created Joint Venture companies certainly need to consider the FDI and FII ownership together and be capped within the sectoral caps, defined from time to time," FICCI said in a statement.