Make in India: Centre enhances approval free limits for FDI in defence

New Delhi, September 18

The Centre has enhanced the FDI limit for the defence sector by allowing up to 74 per cent capital via automatic route.

The government’s decision to ease FDI norms in the defence sector will push self-reliance in production and keep national interests and security paramount, Commerce and Industry Minister Piyush Goyal has said on Friday.

He said foreign investments in the defence sector would be subject to scrutiny on grounds of national security.

Now, government approval will be required for in-take of foreign capital beyond 74 per cent with a stipulation that the foreign capital “is likely to result in access to modern technology or for other reasons to be recorded”.

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. pic.twitter.com/LngBhTO0Zb

— Piyush Goyal (@PiyushGoyal) September 18, 2020

According to the Department for Promotion of Industry and Internal Trade (DPIIT), the decision will take effect from the date of FEMA (Foreign Exchange Management Act) notification.

“Now, FDI is allowed up to 74 per cent through automatic route and beyond 74 per cent to be permitted through government (approval) route. This will enhance ease of doing business and contribute to growth of investment, income and employment. In line with our collective vision of Aatmanirbhar Bharat, amendments will enhance self-reliance in defence production, while keeping national interests and security paramount,” he said in a tweet.

Welcome PM @NarendraModi ji’s decision to amend FDI policy in Defence Sector.

Now, FDI is allowed upto 74% through automatic route & beyond 74% to be permitted through Govt route

This will enhance Ease of Doing Business & contribute to growth of investment, income & employment. pic.twitter.com/Ltstqi6Fbg

— Piyush Goyal (@PiyushGoyal) September 18, 2020

“Infusion of fresh foreign investment up to 49 per cent, 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 or shareholding pattern or transfer of stake by existing investor to a new foreign investor for FDI up to 49 per cent within 30 days of such change. Proposals for raising FDI beyond 49 per cent from such companies will require government approval,” the press release added.

The development assumes significance as the Centre is trying to boost domestic defence sector manufacturing.

The permit for up to 74 per cent FDI in the defence manufacturing through the automatic route was announced by Finance Minister Nirmala Sitharaman in May while announcing the fourth tranche of the Rs 20 lakh crore stimulus package for the coronavirus-hit economy.

In July 2018, the government had relaxed foreign direct investment norms in the defence sector by allowing up to 49 per cent FDI under the automatic route.

The move was aimed at boosting domestic industry as India imports about 70 per cent of its military hardware.

According to the Department for Promotion of Industry and Internal Trade data, defence industries have received FDI equity inflows of $9.52 million (Rs 56.88 crore) during April 2000 and March 2020.

Under the government route, foreign investors have to take prior approval of the respective ministry and department while in the automatic route. The investor just has to inform the Reserve Bank of India after the investment is made.

At present, India is considered to be one of the largest weapons importers in the world. PTI/IANS