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The Indian government has given the go-ahead for UK-based defence giant BAE Systems’s joint venture with Mahindra & Mahindra. BAE will have 26% in the JV, which will manufacture artillery, armoured vehicles and anti-land mine vehicles in India.

Earlier this year, the Foreign Investment Promotion Board (FIPB) — the body which approves foreign investment into India — had rejected BAE Systems’ proposal to hold a 49% stake in the JV, citing existing regulation that allows only 26% foreign investment in the defence sector. Following this, both companies had recently filed a revised application with the FIPB.

“This is a key step in setting up the JV, and in accordance with current foreign direct investment regulations, the equity split will be 74% with Mahindra & Mahindra and 26% BAE Systems. Mahindra & Mahindra and BAE Systems will now finalise detailed planning and structural arrangements with a view to commencing JV operations as early as the second quarter of 2009,” both companies said in a statement.

Headquartered in Delhi, with manufacturing in Faridabad, the JV will initially employ 50-60 people. Initial work is likely to include the up-armouring of Rakshak vehicles, axe vehicle production, and starting the process of developing a mine resistant ambush protected vehicle suitable for India, the companies added.

According to BAE System’s chief executive, Ian King, this marks the ‘first step in the defence major’s plans to grow long term businesses in India in multiple sectors’.

“The ever strengthening relationship between Mahindra & Mahindra and BAE Systems is an excellent basis on which to develop a company that is founded with the express purpose of serving the Indian armed forces and the Indian economy through the creation of high quality jobs, the development of innovative technologies and system integration skills, and the leadership of two world class companies,” he added.

So far, the Indian government has exempted only Russia’s Irkut from the 26% foreign direct investment cap. This is because the Russian company has an equal joint venture with state-owned Hindustan Aeronautics for building a fifth-generation aircraft.

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