In a big push for ‘Make in India’ for the defence sector, the Finance Ministry has decided raising the Foreign Direct Investment (FDI) limit in the defence sector under the automatic route from 49% to 74%. It was also decided that the import of some weapons and platforms will not be allowed.
FDI in Defence Sector
- FDI Cap is 100%. FDI up to 49% is allowed through automatic route and above 49% under government route wherever it is likely to result in access to modern technology or for other reasons to be recorded.
- The Union cabinet has approved the change in the FDI policy (49% to 74% through automatic route), but with a rider that all such investments will be subject to scrutiny on grounds of national security.
- Infusion of fresh foreign investment within the permitted automatic route level, in a company not seeking industrial licence, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, will require Government approval.
Government Approval
- License applications will be considered and licenses given by the Department of Industrial Policy & Promotion, 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 and guidelines of the Ministry of Defence.
- Subsequent to abolition of the Foreign Investment Promotion Board (FIPB), the work of granting approval for foreign investment under the extant FDI Policy, has been entrusted to the concerned Administrative Ministries/ Departments.
- The DIPP, Ministry of Commerce & Industry has been given the responsibility of overseeing the applications filed on the Foreign Investment Promotion Portal (FIPP) and to forward the same to the concerned Administrative Ministry.
Joint Ventures
- Investee companies 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.
- Indian companies with foreign investment exceeding 49% are not eligible to participate in all types of acquisition programmes. For example, under the Strategic Partnership Model (SPM) which the MoD intends to adopt for manufacturing of aircraft, helicopters, only such Indian companies as are owned and controlled by Indian citizens can participate as prime vendors.
- A company shall be considered as ‘owned’ by resident Indian citizens if more than fifty percent (50%) of the capital in it is directly or beneficially owned by resident Indian citizens and/ or Indian companies, which are ultimately owned and controlled by resident Indian citizens.
Source: makeinindia website, The Hindu
