Foreign firms can now directly invest into the Indian defence sector as the Union cabinet made changes in the Foreign Direct Investment Policy for the Defence Sector. The Government on Friday raised the Foreign Direct Investment cap from 49 percent through the automatic route.
Indian Minister for Commerce and Industry Piyush Goyal on Friday said that he “welcomed Prime Minister Narendra Modi’s decision to amend the Foreign Direct Investment Policy in the Defence Sector.
“Welcome PM Narendra Modi ji’s decision to amend the FDI policy in Defence Sector. Now, FDI is allowed up to 74 percent through automatic route and beyond 74 percent to be permitted through Govt route. This will enhance Ease of Doing Business & contribute to (the) growth of investment, income and employment,” Goyal tweeted.
Welcome PM @NarendraModi ji's decision to amend FDI policy in Defence Sector.
Now, FDI is allowed upto 74% through automatic route & beyond 74% to be permitted through Govt route
This will enhance Ease of Doing Business & contribute to growth of investment, income & employment. pic.twitter.com/Ltstqi6Fbg
— Piyush Goyal (@PiyushGoyal) September 18, 2020
Currently 100 per cent overseas investments are permitted in the defence industry — 49 per cent is allowed under the automatic route but beyond that, government approval is required.
The amendment now says “FDI up to 74 per cent under automatic route shall be permitted for companies seeking new industrial licences”
However, Goyal further clarified that foreign investments in the defence sector shall be subject to scrutiny on the grounds of national security.
“Foreign investments in (the) defence sector shall be subject to scrutiny on grounds of National Security. In line with our collective vision of Aatmanirbhar Bharat, amendments will enhance self-reliance in defence production, while keeping national interests & security paramount,” he wrote further in a tweet.
The union government on Thursday announced that FDI up to 74 percent under automatic route will be allowed for companies who seek new industrial licenses, according to a press note by the Department for Promotion of Industry and Internal Trade.
The government in 2018 had previously relaxed the FDI rules which allowed the foreign entities to invest up to 49 percent directly. The move was designed to boost the domestic industry as India imports about 70 percent of its military hardware.