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Centre permits up to 74 per cent Foreign Direct Investment under automatic route in defence sector

Till now, 100% of foreign investments were permitted in the defence industry, where 49% was under the automatic route and government approval was required beyond that.

Sep 18, 2020 12:47 IST
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The Department for Promotion of Industry and Internal Trade (DPIIT) has issued a note on September 17, 2020, permitting the Foreign Direct Investment (FDI) above 74% in the defence production on the automatic route.

The permission for FDI by DPIIT has been subjected to the access to modern technology or for other reasons that need to be recorded. As per the press note, FDI up to 74% under the automatic route shall be permitted for companies seeking industrial licenses.

Till now, 100% of foreign investments were permitted in the defence industry, where 49% was under the automatic route and government approval was required beyond that.

DPIIT permitting FDI in defence production:

The press note issued by the Department for Promotion of Industry and Internal Trade (DPIIT) has stipulated that foreign investments in the defence sector will be subject to the scrutiny on the grounds of the national security and the government will reserve the right to review any foreign investment in the sector that affects or may affect the national security.

Conditions for investment in defence production:

DPIIIT has also cleared that the infusion of fresh investment up to 49% in a company not seeking the industrial license or which already has the govt approval for FDI in defense will be requiring the mandatory submission of the declaration in the Defence Ministry, in case change in equity pattern/shareholding or transfer of stake by existing investor to a new foreign investor for FDI up to 49% within 30 days of such change.

The proposal for raising Foreign Direct Investment beyond 49% from such companies will require government approval.

The government has also retained the condition that the investee company must be structured to be self-sufficient in the areas of product design and development. It has cleared that the investee/joint venture company along with the manufacturing facility must also have a life cycle support and maintenance facility of the product manufactured in India.

The license applications will be considered and licenses given by the DPIIT in consultation with the Defence Ministry and Ministry of External Affairs.

As per the authorities, the decision will take effect from the date of the Foreign Exchange Management Action notification.

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