FDI is now allowed up to 74 percent through automatic route in Defence Sector

New Delhi: The government has allowed Foreign Direct Investment of up to 74 percent for companies seeking new industrial licenses under automatic route in the Defence sector.

Commerce and Industry Minister Piyush Goyal welcomed the government’s decision and said the step will enhance Ease of Doing Business and contribute to the growth of investment, income & employment.

‘Welcome PM Narendra Modi ji’s decision to amend FDI policy in Defence Sector. Now, FDI is allowed up to 74 percent through the automatic route & beyond 74 percent to be permitted through Govt route

This will enhance Ease of Doing Business & contribute to the growth of investment, income & employment,’ he said in his tweet on Friday.

He said Foreign investments in defence sector shall be subject to scrutiny on grounds of National Security.

‘In line with our collective vision of Aatmanirbhar Bharat, amendments will enhance self-reliance in defence production, while keeping national interests & security paramount,’ he added in his missive.

According to a press note issued by the Department for Promotion of Industry and Internal Trade on Thursday, ‘Automatic up to 74 per cent Government route beyond 74 per cent wherever it is likely to result in access to modern technology or for other reasons to be recorded .’

As per the current FDI policy, 100 per cent overseas investments are permitted in the defence industry — 49 per cent under the automatic route, while beyond that government approval was required.

‘Infusion of fresh foreign investment up to 49 percent, in a company not seeking an industrial license or which already has Government approval for FDI in Defence, shall require mandatory submission of a declaration with the Ministry of Defence in case change in equity/shareholding pattern or transfer of stake by existing investor to a new foreign investor for FDI up to 49 percent, within 30 days of such change,’ the note stated.

Licence applications will be considered by the Department for Promotion of Industry and Internal Trade, Ministry of Commerce & Industry, in consultation with the Ministry of Defence and Ministry of External Affairs.

Foreign investment in the sector is subject to security clearance by the Ministry of Home Affairs and as per guidelines of the Ministry of Defence, the note added.

Investee company should be structured to be self-sufficient in the areas of product design and development.

The investee or joint venture company along with the manufacturing facility should also have maintenance and life cycle support facility of the product being manufactured in India.

Foreign Investments in the Defence Sector will be subject to scrutiny on grounds of National Security and Government reserves the right to review any foreign investment in the Defence Sector that affects or may affect national security.

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