Foreign Investment in Defence Sector

Press Note No. 7 (2014 Series)

Government of India (GOI) has reviewed the policy on Foreign Direct Investment to liberalise the norms of FDI in Defence Sector.

Mr. Pankaj Singla
Sr. Associate
As per FDI Policy of 2014 (“FDI Policy”), issued on April 17th, 2014, by the Department of Industrial Policy and Promotion (“DIPP”), FDI in Defence sectors is permitted upto 26% under Government Route and any proposals for FDI beyond 26% can be made to Cabinet Committee on Security (CCS).

The GOI has reviewed the FDI Policy vide Press Note No. 7 (2014 Series) and has amended Paras 4.1.3 (v) (d) and 6.2.6 of the FDI Policy to permit FDI upto 49% under Government Route. Proposals for FDI beyond 49% shall be considered by CCS on case to case basis, wherever it is likely to result in access to modern and state-of-art technology in the country.

Other developments and conditions:

  • Investment by FIIs, FPIs, FVCI and QFIs in Defence has also been permitted and the FDI limit of 49% is composite and includes all kinds of foreign investment.
  • Overall limit of Portfolio investment by FPIs/FIIs/NRIs/QFIs and investment by FVCIshas been set at 24% of the total equity of the investee company.
  • Portfolio investments are permitted under automatic route.
  • The proposals seeking approval for FDI upto 49% can be made only by Indian companies ‘owned and controlled’ by resident Indian citizens. However, for the proposals seeking Government approval for FDI beyond 49%, the applicant company need not be an Indian company; accordingly, the management of the applicant company need not be in Indian hands and the majority representation on board and chief executives of the company need not be resident Indians.
  • Chief Security Officer of the investee company should be a resident Indian citizen regardless of the percentage of FDI in the company.
  • The investee company is additionally required to ensure that it is self-sufficient in areas of product design and development. Therefore, a company having FDI may not outsource product design and development activities to any other entity. The investee companies are also required to ensure maintenance and life cycle support facility of the products being manufactured in India.
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