What is Government’s FDI Policy in Defence Sector?

Snapshot

  • FDI in defence is allowed up to 100 per cent with conditions – access to modern technology, approval route and scrutiny by the concerned ministries.
  • FDI upto 49% is allowed through automatic route.

Government has modified the defence FDI policy by increasing the sectoral limits for FDI. Sectoral cap has been increased to 100%, but investment beyond 49% need government approval that comes with modern technology (FDI Policy amendment, July 2016). This means that investment up to 49% is made through automatic route.  

The 100 % FDI projects are allowed under government approval route. In such projects, additional scrutiny by the Cabinet Committee on Security is applicable.

Licence applications will be considered and licences given by the DIPP, Ministry of Commerce and Industry, in consultation with Ministry of Defence and Ministry of External Affairs. Similarly, foreign investment in the sector is subject to security clearance and guidelines of the Ministry of Defence.

The investee company should be self-sufficient in areas of product design and development. The amendment state that “The investee/joint venture company along with manufacturing facility, should also have maintenance and life cycle support facility of the product being manufactured in India.”

The latest amendment makes that foreign OEMs (original equipment manufacturers) with 100% FDI, can independently manage their operations in India. On the other hand, previous rules stipulated that foreign OEMs were required to form Joint Ventures with domestic firms for starting defence production.

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