What is FDI Liberalization

In recent years, the government of India has liberalized the FDI policy to promote economic growth. Since defense industry is highly capital—and technology—intensive and there is a scarcity of indigenous production capacity, the import dependence of India is likely to be high. Though the percentage share of FDI in defense to total FDI flow in India is remarkable, the increase in FDI share in defense is likely to enhance the dependence of the country on foreign sources at the expense of attainment of self-reliance in defense. It has been observed that the growth rate in imports on account of defense needs has increased relative to that in exports and export-import ratio has tended to decline in recent years, leading to the worsening of balance of payments. Thus, it is worth overhauling the role of FDI liberalization in promotion of the domestic manufacturing defense goods as what has been intended in this chapter.