Pursuant to the announcement made by the Finance Minister under tranche IV of the Special Economic Package with respect to FDI in the Defence Sector, the government has amended the Consolidated FDI Policy of 2017 to increase the FDI limit to up to 74% under the automatic route (earlier 49%), and beyond that under the approval route. The government has also stipulated three additional conditions, namely :

• FDI up to 74% under automatic route (earlier 49%) will be permitted for companies seeking new industrial licenses.
• Where there is Infusion of fresh investment up to 49% in a company not seeking an industrial licence or which already has government approval , the company is mandated to submit a declaration with the Ministry of Defence in case of a change in equity/shareholding pattern or transfer of stake by the existing investor to a new foreign investor, within 30 days of such change. Proposals for raising FDI beyond 49% from such companies will require Government approval.
• Foreign Investments will be subject to scrutiny on grounds of National Security and the Government reserves the right to review any foreign investment in this Sector that affects or may affect national security.

The following extant conditions remain the same and continue to be in force:

• Licence applications will be considered by the DPIIT, Ministry of Commerce & Industry, in consultation with Ministry of Defence and Ministry of External Affairs.
• Foreign investment will be subjected to security clearance by Ministry of Home Affairs and as per guidelines of the Ministry of Defence.
• Investee company should be structured to be self-sufficient in the areas of product design and development. The investee/joint venture company along with the manufacturing facility, should also have maintenance and life cycle support facility of the product being manufactured in India.

The revised policy conditions will come into effect from the date of FEMA notification. To refer to Press Note 4 of 2020, dated 17 September 2020, click here.