Reviewing Foreign Direct Investment (FDI) Policy in Defence Sector

Reviewing Foreign Direct Investment (FDI) Policy in Defence Sector

18 SEP 2020

Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry has issued Press Note No. 4 (2020 Series), reviewing Foreign Direct Investment (FDI) Policy in Defence Sector. The decision will take effect from the date of FEMA notification.

The Present Position is as follows:

Sector/Activity % of Equity/ FDI Cap Entry Route
Defence Industry subject to Industrial

license under the Industries

(Development & Regulation) Act,

1951 and Manufacturing of small

arms and ammunition under the Arms Act, 1959

100% Automatic up to 49%
    Government route beyond
    49% wherever it is likely to
    result in access to modern
    technology or for other
    reasons to be recorded

Other Conditions

  1. Infusion of fresh foreign investment within the permitted automatic route level, in a company not seeking industrial license, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, will require Government approval.
  2. Licence applications will be considered and licences given by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, in consultation with Ministry of Defence and Ministry of External Affairs.

iii. Foreign investment in the sector is subject to security clearance and guidelines of the M/ o Defence.

  1. Investee company should be structured to be self-sufficient in areas of product design and development. 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 Revised Position will be as follows:

The Government of India has reviewed the extant FDI policy in Defence sector and the policy will now be read as under:

Sector/Activity % of Equity/FDI Cap Entry Route
Defence Industry subject to

Industrial license under the

Industries (Development &

Regulation) Act, 1951 and

Manufacturing of small arms and ammunition under the Arms Act, 1959

100% Automatic up to 74%. Government route beyond 74% wherever it is likely to result in access to modern technology or for other reasons to be recorded

Other Conditions

  1. FDI up to 74% under automatic route shall be permitted for companies seeking new industrial licenses.
  2. Infusion of fresh foreign investment up to 49%, in a company not seeking 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 new foreign investor for FDI up to 49%, within 30 days of such change. Proposals for raising FDI beyond 49% from such companies will require Government approval.

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

  1. 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.
  2. 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.
  3. Foreign Investments in the Defence Sector shall 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.

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