Government allows 74 pct FDI in defence sector under automatic route

The government on Thursday allowed foreign direct investment (FDI) of up to 74 per cent under automatic route in the defence sector, according to a note issued by the Department for Promotion of Industry and Internal Trade (DPIIT) said in the note on Thursday. It, however, added that all the foreign investments in defence will be subject to scrutiny on the grounds of national security and the government reserves the right to review any foreign investment in the sector that affects or may affect national security, 

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". 

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. 

"FDI up to 74 per cent under automatic route shall be permitted for companies seeking new industrial licenses," DPIIT said in a press note. 

"Infusion of fresh foreign investment up to 49 per cent, 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 or shareholding pattern or transfer of stake by existing investor to new foreign investor for FDI up to 49 per cent within 30 days of such change." 

It said that proposals for raising FDI beyond 49 per cent from such companies will require government approval. The development assumes significance as the Centre is trying to boost domestic defence sector manufacturing.  

At present, India is considered to be one of the largest weapons importers in the world. The current policy allows 100 per cent overseas investments in the defence industry -- 49 per cent under the automatic route, while beyond that government approval was required.