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The Foreign Investment Promotion Board will now have a say in determining whether a Foreign Direct Investment (FDI) proposal in the defence sector beyond the capped 26 per cent qualifies as modern and ‘state-of-art’ technology and should be approved.
After much persuasion by the Department of Industrial Policy & Production (DIPP), the nodal Ministry for drafting FDI rules, the Defence Ministry has agreed to get FDI proposals over the capped limit of 26 per cent vetted by the FIPB in addition to scrutiny by the Department of Defence Productions (DoDP), a DIPP official told Business Line .
This means that the definition of ‘state-of-art’ will not be arbitrarily decided by the Defence Ministry, and the FIPB could put in place certain parameters to determine what would qualify as such an investment.
The fresh notification on FDI in Defence sector put up by the DIPP last week categorically states that “based on the recommendations of the DoDP and FIPB, approval of the Cabinet Committee on Security (CCS) will be sought by the DoDP in respect of cases which are likely to result in access of modern and state-of-art technology.’’
The FIPB’s role in approval of defence projects with high FDI component was not defined when the Union Cabinet earlier this month approved an increase in the FDI cap in the sector beyond the existing 26 per cent in cases where it would result in modern technology.
The Defence Ministry had insisted that it would be solely responsible for determining where higher FDI (beyond 26 per cent) should be allowed and such proposals would be approved by the Cabinet Committee on Security.
“The DIPP was a little uncomfortable with the arrangement as it meant that the FIPB would have no role in determining what constitutes ‘state-of-art’ technology and everything was being left to the discretion of the Defence Ministry,” the official said.
The FIPB, headed by the Economic Affairs Secretary and comprising officials from key Ministries and Departments including Industry, Corporate Affairs and Revenue, clears FDI proposals that are not allowed through the automatic route.
The DIPP held a series of discussions with the Defence Ministry to persuade it to also let FIPB decide what should qualify as ‘state-of-art’ technology, together with the Department of Defence Productions under the Defence Ministry.
“When we convinced them that the Defence Ministry will continue to have a final say in the matter, they relented. But we are glad that the FIPB, too, can now exercise its opinion on important defence proposals with high FDI component,” the official said.
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