India has recently granted approval for Sweden’s Saab to establish a new manufacturing facility in the country, marking a significant milestone as the first foreign company to receive 100% Foreign Direct Investment (FDI) in India’s defense projects. While India previously permitted up to 74% FDI in the defense sector under the automatic route, clearances beyond that threshold were subject to individual assessment.
The government relaxed these regulations in 2015 to encourage foreign investments, yet until now, no foreign firm had received permission for 100% FDI in defense.
FDI Proposal Approval: Last month, the Indian government approved a ₹500 crore FDI proposal from Sweden’s Saab, marking a historic moment in India’s defense industry. This decision represents a significant departure from the previous FDI restrictions in the sector.
- Saab’s Manufacturing Plans: Saab’s new entity, Saab FFV India, has been officially registered, and it will focus on manufacturing the latest generation of the Carl-Gustaf M4 shoulder-fired rocket system. This venture will be the first time Saab produces the Carl-Gustaf M4 outside of Sweden. The manufacturing facility is expected to be established in Haryana, India.
- Importance of Carl-Gustaf M4: The Carl-Gustaf M4 shoulder-fired rockets are crucial for the Indian armed forces, and they are widely used by the military to engage fortified enemy positions, armored vehicles, and personnel. These rockets offer versatile firepower capabilities.
Historical Perspective: Prior to Saab’s success in securing 100% FDI, French firm DCNS sought similar approval in 2016. They aimed to establish a subsidiary in India for the development of advanced technologies enhancing submarine endurance. However, DCNS did not receive the permission to invest over ₹100 crore in their Indian subsidiary, DCNS India Pvt Ltd.
FDI Trends in India’s Defense Sector:
- India has been actively encouraging FDI in the defense sector, increasing the limit from 26% to 49% in 2001 and then to 74% in 2016 through the automatic route.
- While foreign investments in defense have been steadily increasing, Saab’s approval for 100% FDI is a groundbreaking development, indicating India’s commitment to attracting modern technology and investments in the sector.
- In the fiscal year 2023, India received $3.21 million in FDI in the defense industry, showing substantial growth compared to previous years. In 2021-22, it attracted $2.36 million, while investments were considerably lower in the years preceding.