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FinMin nod for 74% FDI in Defence sector under automatic route

KR Srivats Srivats KR New Delhi | Updated on December 09, 2020

Aero India 2019 at Yelahanka Air Force Station in Bengaluru (file photo)   -  Sampath Kumar GP

Effects the necessary FEMA rule change for this purpose

The Finance Ministry has now permitted foreign direct investment (FDI) in the Defence sector up to 74 per cent under the automatic route, notifying, on Tuesday, the changes required to FEMA (Non Debt Instruments) rules for this purpose.

It may be recalled that the Commerce and Industry Ministry had, in September this year, raised the FDI limit for the Defence sector through the automatic route to 74 per cent from 49 per cent. The raised limits will, among other things, help firms seeking new industrial licences.

FDI limit in defence through automatic route raised to 74%

The amended FEMA (NDI) rules stipulate Government approval where FDI goes beyond 74 per cent and is likely to result in access to modern technology or for other reasons to be recorded. Currently, the sectoral cap for Defence sector is 100 per cent.

Conditions apply

The conditions specify that FDI up to 74 per cent would be permitted for companies seeking new industrial licences. Also, infusion of fresh foreign investment up to 49 per cent, in a company not seeking industrial licence or which already has Government approval for FDI in Defence, would require submitting a declaration with the Ministry of Defence in cases of change in equity/shareholding pattern or transfer of stake by existing investor to new foreign investor, for FDI up to 49 per cent, within a period of thirty days of such change. Any proposal for raising FDI beyond 49 per cent from such companies shall require Government approval.

It has also now been stipulated that all foreign investments in Defence sector would be subject to security clearance by Home Ministry and as per the guidelines of Ministry of Defence.

All licence applications will be considered by the Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, in consultation with Ministry of Defence and Ministry of External Affairs.

The conditions also specify that foreign investments in the Defence sector would be subject to scrutiny on grounds of national security and the Government reserves the right to review any foreign investment in the Defence sector that affects or may affect national security.

Published on December 09, 2020

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