Looking to boost innovation and productivity in defence manufacturing, central government has enhanced the FDI limit for defence sector by allowing up to 74 per cent capital via automatic route. 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. Proposals for raising FDI beyond 49 per cent from such companies will require government approval.”
The press note has stipulated that foreign investments in the defence sector would 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. The government has retained the condition that 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,” it said.
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. (IANS, ET)