FDI in defence sector has been allowed upto 49% of the equity of the investee, up from 26% as at present. Government of India vide Department of Industrial Policy & Promotion has issued Press Note no. 7/2014 dated 26th August, 2014 to this effect. This 49% is approval route from the Government.
Further this FDI limit of 49% will include all kinds of foreign investment i.e. FDI, FII, FPI, NRI, FVCI & QFIs.
Portfolio investment upto 24% is however allowed on automatic route.
The Government will consider FDI above 49% on a case by case basis.
There are other conditions such as
(a) the sector is subject to license and therefore licensing will be done by DIPP in liaison with Ministry of Defence;
(b) Applicant should be an Indian company owned and controlled by resident Indian citizens;
(c) Management of the company should be in Indian hands including the Managing Director/ CEO should be Indians;
(d) Chief Security Officer should be an Indian citizen;
(e) Full particulars of Directors/ CEO should be furnished alongwith the application;
(f) Preference will be given to OEMs or design establishments and companies having good track record in the past with the Armed Forces;
(g) There is no minimum capitalization requirement for the FDI;
(h) No purchase guarantee will be given by the Ministry of Defence;
(i) The company should also have maintenance and life cycle support facility for the product being manufactured in India along with the manufacturing facility;
(j) Import of equipment for pre-production activity including prototype will be permitted;
(k) Adequate safety and security procedures need to be put in place by the licensee;
(l) Standards and testing procedures for the equipment will have to be provided to the Government under appropriate confidentiality clause. The nominated quality assurance agency will do the inspection and audit of the Quality assurance procedures of the licensee. Self certification would be allowed on a case to case basis;
(m) Purchase preference and price preference might be given to the public sector enterprises in the sector;
(n) Arms and ammunition manufactured under license will be sold only to the Ministry of Defence or units under the ministry of home affairs. It cannot be sold in the private market. Export would be permitted subject to the guidelines.
(o) Non lethal weapons would be permitted to sold to persons other the MOD or MOHA subject to obtaining necessary permissions;
(p) The company would need to set up a verifiable system of removal of items from out of their factory. Violation of these provisions may lead to cancellation of the licence.
(q) All application to be made to the Foreign Investment Promotion Board (FIPB). Proposals upto 49% involving investment in excess of Rs.1200 crores (Rs.12,000 million) will be sent to the Cabinet Committee on Economic Affairs (CCEA) for clearance.
(r) For proposals beyond 49% approval will be sought from the Cabinet Committee on Security (CCS). Proposals beyond 49% and involving investment exceeding above limits will not require CCEA clearance if it has been cleared by the CCS.
(s) Government decision on the FDI will be communicated normally within a period of 10 weeks from the date of acknowledgement of the application.
(t) For proposals beyond 49% the application should be made by Indian company or foreign investor but the management need not be in Indian hands and it is not necessary to have Managing Director or CEO as Indian.
A copy of the press release can be found here
Further this FDI limit of 49% will include all kinds of foreign investment i.e. FDI, FII, FPI, NRI, FVCI & QFIs.
Portfolio investment upto 24% is however allowed on automatic route.
The Government will consider FDI above 49% on a case by case basis.
There are other conditions such as
(a) the sector is subject to license and therefore licensing will be done by DIPP in liaison with Ministry of Defence;
(b) Applicant should be an Indian company owned and controlled by resident Indian citizens;
(c) Management of the company should be in Indian hands including the Managing Director/ CEO should be Indians;
(d) Chief Security Officer should be an Indian citizen;
(e) Full particulars of Directors/ CEO should be furnished alongwith the application;
(f) Preference will be given to OEMs or design establishments and companies having good track record in the past with the Armed Forces;
(g) There is no minimum capitalization requirement for the FDI;
(h) No purchase guarantee will be given by the Ministry of Defence;
(i) The company should also have maintenance and life cycle support facility for the product being manufactured in India along with the manufacturing facility;
(j) Import of equipment for pre-production activity including prototype will be permitted;
(k) Adequate safety and security procedures need to be put in place by the licensee;
(l) Standards and testing procedures for the equipment will have to be provided to the Government under appropriate confidentiality clause. The nominated quality assurance agency will do the inspection and audit of the Quality assurance procedures of the licensee. Self certification would be allowed on a case to case basis;
(m) Purchase preference and price preference might be given to the public sector enterprises in the sector;
(n) Arms and ammunition manufactured under license will be sold only to the Ministry of Defence or units under the ministry of home affairs. It cannot be sold in the private market. Export would be permitted subject to the guidelines.
(o) Non lethal weapons would be permitted to sold to persons other the MOD or MOHA subject to obtaining necessary permissions;
(p) The company would need to set up a verifiable system of removal of items from out of their factory. Violation of these provisions may lead to cancellation of the licence.
(q) All application to be made to the Foreign Investment Promotion Board (FIPB). Proposals upto 49% involving investment in excess of Rs.1200 crores (Rs.12,000 million) will be sent to the Cabinet Committee on Economic Affairs (CCEA) for clearance.
(r) For proposals beyond 49% approval will be sought from the Cabinet Committee on Security (CCS). Proposals beyond 49% and involving investment exceeding above limits will not require CCEA clearance if it has been cleared by the CCS.
(s) Government decision on the FDI will be communicated normally within a period of 10 weeks from the date of acknowledgement of the application.
(t) For proposals beyond 49% the application should be made by Indian company or foreign investor but the management need not be in Indian hands and it is not necessary to have Managing Director or CEO as Indian.
A copy of the press release can be found here
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