Govt issues FEMA notification for 74% FDI in defence through automatic route

The government has clearly mentioned that all foreign investment in the defence sector is subject to security clearance by the Ministry of Home Affairs and as per guidelines of the Ministry of Defence..

Moneycontrol News

December 08, 2020 / 23:03 IST

LCA “Tejas” | The Tejas is an indigenously developed, single-engine, fourth-generation, high-agility, multirole, supersonic light combat aircraft. (Image: Twitter @AIF_MCC)

The Union government on December 8 issued another notification regarding changes in the Foreign Exchange Management Act (FEMA) permitting foreign direct investment (FDI) in defence production up to 74 percent under the automatic route.

Earlier in September, the Union Ministry of Commerce and Industry raised the FDI limit for the defence sector through the automatic route to 74 per cent from 49 per cent. This was done in line with the decisions taken by the Centre in August. The raised limits would help the firms seeking new industrial licences.

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As per the new policy, the increased FDI limit can go beyond 74 percent wherever it is likely to result in access to modern technology or for other reasons that should be recorded. This increased limit will be applicable subject to industrial licence under the Industries (Development & Regulation) Act, 1951, and manufacturing of small arms and ammunition under the Arms Act, 1959.

Firms seeking new industrial licences will be permitted FDI up to 74 percent under the automatic route. For infusion of fresh foreign investment up to 49 percent in a company not seeking industrial licence, there should be a mandatory submission of a declaration with the Ministry of Defence in case there is a change in equity or shareholding pattern or transfer of stake by existing investor to the new foreign investor. It should be submitted within 30 days of such change.