FDI limit needs to be raised to 49%: Assocham

The foreign direct investment limit in the defence sector needs to be increased to 49% from the current 26% to facilitate the flow of investment and technological know-how, industry body Assocham has said.

"It is necessary to be self-reliant in defence production, which could be possible if FDI limit is raised to 49%. This will help India acquire defence technology for its increased arms production and reduce dependence on imports," the chamber said in a statement.

Since the 1991 Kargil war, India's arms imports have risen to $25 billion and would further rise to $30 billion by 2012.

If the Indian economy continues to grow at current momentum, spending on defence is projected to increase to 3% of the GDP from the current 2.8%, Assocham President Venugopal Dhoot said.

Saudi Arabia and China are the next two large armament buyers in the developing world after India, which notched up defence deals valued between just $2-3 billion each in 2006.

Currently about 70% of the Indian procurement in value terms, is from foreign sources because the Indian public sector cannot deliver in terms of quality or speed on either research or production.

Dhoot further said, FDI hike in defence would also help procurement of latest technologies as per provisions of latest Defence Offset Policy.

The offset policy is expected to bring in $10 billion during the 11th Five Year Plan as every foreign company is required to spend 30% of the value on offsets goods or services purchased from Indian defence companies.