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Saab FFV Is India’s 1st Company To Get 100% FDI In Defence Project

Utkarsh Classes 08-11-2023
Saab FFV Is India’s 1st Company To Get 100% FDI In Defence Project Economy 8 min read

India has granted permission for Sweden's Saab to develop a new rocket manufacturing plant. This was the first time that a company received 100% FDI in the defence industry. The FDI request, worth less than Rs 500 crore, was approved last month.

FDI Trends in India’s Defense Sector 

  • India has actively encouraged FDI in the military sector, increasing the automatic route maximum from 26% to 49% in 2001 and subsequently to 74% in 2016.
  • While foreign investments in defence have steadily increased, Saab's permission for 100% FDI is a game changer, demonstrating India's resolve to attract new technology and investments in the field.
  • Under the automatic method, India now allows just 74% FDI in the defence industry. Clearance can be granted on a case-by-case basis after that. 
  • Despite the fact that the clearance standards were reduced in 2015, no foreign business was able to obtain authorization for 100% FDI in defence. 
  • In 2016, the French business DCNS became the first foreign company to seek 100% FDI clearance to establish a subsidiary to develop innovative technology that would provide submarines greater underwater endurance. 
  • India presently allows up to 74% FDI in the military industry under the automatic route, with further permissions granted on an individual basis.
  • During the fiscal year 2023, India received $3.21 million in foreign direct investment (FDI) in the military sector. 
  • According to Centre statistics, the industry attracted $2.36 million in foreign investment in 2021-22, $0.63 million in 2020-21, $2.20 million in 2019-20, $2.18 million in 2018-19, and $0.01 million in 2017-18. 

Saab FFV India

  • Saab FFV India is a new firm that has been registered to build the Carl-Gustaf M4 system's newest iteration, with the facility expected to be situated in Haryana. 
  • According to the financial daily, it would include modern technologies like sighting technology and carbon fibre winding for the Carl-Gustaf system. 
  • Saab FFV India is proud to be the first global military business to be allowed by the Indian government for 100% foreign direct investment in their new Carl-Gustaf manufacturing facility in India. 

What will Saab do? 

  • Saab FFV India will concentrate on producing the Carl-Gustaf M4 shoulder-fired rocket system's newest iteration. 
  • This is the first time Saab will build the Carl-Gustaf M4 outside of Sweden. 
  • The manufacturing plant would be located in Haryana, India.
  • The shoulder-fired rockets are widely utilised by Indian armed forces, and countries such as the United States and Europe also use them to destroy reinforced enemy positions, armour, and soldiers.

About Carl-Gustaf M4

  • The Carl-Gustaf M4 shoulder-fired rockets are critical for the Indian military, and they are commonly used to target entrenched enemy positions, armoured vehicles, and soldiers. 
  • These rockets have a wide range of firepower capabilities.

What is FDI?

  • A Foreign Direct Investment (FDI) is an investment made by a company or individual in one nation into a business in another.
  • An investor can buy a direct business interest in a foreign nation through FDI.
  • Entities in India that can attract FDI: 


 

  • Indian Company
  • Partnership Firm
  • Proprietary Concern
  • Trusts
  • Limited Liability Partnerships (LLPs)
  • Investment Vehicle
  • Startup Companies
  • The World Investment Report 2022 ranks India seventh among the top 20 host economies for 2021.
  • In FY22, India received USD 84.8 billion in FDI inflows, including USD 7.1 billion in FDI equity inflows in the services sector.
  • Inflows of foreign direct investment increased from USD 74,391 million in fiscal year 19-20 to USD 81,973 million in fiscal year 20-21 in 2021.

 

Top 5 FDI Sourcing Nation (FY 2021-22)

Singapore

27.01%

USA

17.94%

Mauritius

15.98%

Netherland

7.86%

Switzerland

7.31%

Top Sectors for FDI (FY 2021-22)

Computer Software & Hardware

24.60%

Services Sector 

12.13%

Automobile Industry 

11.89%

Trading

7.72%

Construction (Infrastructure) Activities

5.52%

Top Destinations

Karnataka

37.55%

Maharashtra

26.26%

Delhi

13.93%

Tamil Nadu

5.10%

Haryana

4.76%

 

Regulatory framework for FDI in India 

  • Foreign investment in India is governed by defined currency rules, sector-specific policies/regulations, government policies, and international agreements. 
  • Foreign investment is primarily governed by the Foreign Exchange Management Act of 1999, as modified from time to time (FEMA), and the rules and regulations promulgated under it. 
  • The primary goal of FEMA is to regulate, consolidate, and alter foreign exchange laws in order to enable foreign investment, external commerce, and payments, as well as to encourage the orderly growth and preservation of India's foreign currency market.

Routes of FDI

  • Automatic Route: The foreign entity does not need prior clearance from the government or the RBI (Reserve Bank of India) in this case. In India, FDI up to 100% is permitted in non-critical industries under the automatic route, with no security clearance required from the Ministry of Home Affairs (MHA).
  • Government Route: In this case, the foreign entity must obtain government approval. It is controlled by the Department for Promotion of Industry and Internal Trade (DPIIT) of the Ministry of Commerce and Industry.

FDI vs FPI

  • Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) are two types of foreign investment.
  • Foreign Direct Investment (FDI) is capital investment made by a person residing outside of India.
  • Foreign Portfolio Investment refers to any investment made through capital instruments by a person residing outside of India.

FAQ

Answer. Foreign Direct Investment (FDI) is defined as an investment in an unlisted Indian firm using equity instruments by a person residing outside of India.

Answer. Department for Promotion of Industry and Internal Trade (DPIIT) is the key Department for the formation of the Government's Foreign Direct Investment (FDI) policy.

Answer. Saab FFV India is the first company to receive 100% FDI in the defence industry.

Answer. There are two routes, Government route and automatic route, to get FDI in India.

Answer. Under the automatic method, India allows just 74% FDI in the defence industry.
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