In Another Boost to Defence Production, Government Allows up to 74% FDI in Defence under Automatic Route

Defence Industry

New Delhi: The Department for Promotion of Industry and Internal Trade (DPIIT) on September 17 issued a press statement permitting foreign direct investment (FDI) in defence production up to 74 per cent under the automatic route. This would be subject to access to modern technology or for ‘other reasons’ that needs to be recorded.

FDI in defence production is automatic up to 74 per cent, the department said.

Till now, 100 per cent foreign investments were permitted in the defence industry – 49 per cent under the automatic route and government approval was required beyond that.

The statement stipulated that foreign investments in the defence sector would be subject to scrutiny on the grounds of national security and the government reserves the right to review any foreign investment in the sector that affects or may affect national security.

As per the Press Note 4 (2020 series), FDI up to 74 per cent under automatic route shall be permitted for companies seeking new industrial licences.

DPIIT also said that infusion of fresh investment up to 49 per cent in a company not seeking industrial licence or which already has government approval for FDI in defence, shall require “mandatory” submission of a declaration with the defence ministry in case of change in equity/ shareholding pattern or transfer of stake by existing investor to new foreign investor for FDI up to 49 per cent within 30 days of such change.

“Proposal for raising FDI beyond 49 per cent from such companies will require government approval,” it added.

The government has retained the condition that investee company should be structured to be self-sufficient in the areas of product design and development. “The investee/ joint venture company along with the manufacturing facility, should also have maintenance and life cycle support facility of the product being manufactured in India,” it said.

License applications will be considered and licences given by the DPIIT in consultation with Ministry of Defence (MoD) and Ministry of External Affairs (MEA).

The decision will take effect from the date of Foreign Exchange Management Act (FEMA) notification.

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