The Cabinet Committee on Security will be the final decision making body for Foreign Direct Investment (FDI) proposals in Defence beyond 49 per cent. This is even when the proposed inflow is in excess of ₹1,200 crore.

According to the new rules on FDI in Defence notified by the Department of Industrial Policy & Promotion, based on the Cabinet decision early this month, FDI proposals beyond 49 per cent vetted by the CCS need not be cleared by the Cabinet Committee on Economic Affairs (CCEA). So far, all FDI proposals with foreign investments over ₹1,200 crore had to be cleared by the CCEA.

The FDI limit to be cleared through the Foreign Investment Promotion Board (FIPB) route has been raised to 49 per cent from 26 per cent. The press note clarified that the cap is composite and includes different types of foreign investments such as FDI, Foreign Institutional Investors (FIIs), Foreign Portfolio Investors (FPIs), Non-Resident Indians (NRIs), Foreign Venture Capital Investors (FVCI) and Qualified Foreign Investors (QFIs), it said.

Further, portfolio investment by FPIs, FIIs, NRIs, QFIs and investments by FVCIs together will not exceed 24 per cent of the total equity of the investee or joint venture company.

The final clearance for FDI proposals within the 49 per cent limit will be given by the CCEA in case foreign investments exceed ₹1,200 crore. All decisions on FDI applications will be normally communicated within a time frame of 10 weeks from the date of acknowledgement, the note said.

Ownership The licence applications will be considered and given by the DIPP in consultation with the Ministries of Defence and External Affairs.

The note specifically laid down that the applicant company seeking permission of the Government for FDI up to 49 per cent should be an Indian company owned and controlled by resident Indian citizens. The management of the applicant company should be in Indian hands.

However, for proposals seeking approval for foreign investment beyond 49 per cent, the applicant could be an Indian company or a foreign investor. The condition of Indian management control is also not applicable in this case.

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