The Department of Industrial Policy and Promotion (“DIPP”) in its press note 6 dated 22 August 2013 (“Press Note”) has reviewed the policy on Foreign Direct Investment (“FDI”). Point 1.3 of the Press Note specifically reviews the policy on FDI in the defence sector.
With relation to the FDI cap, the Press Note has revised the position from 26% FDI cap in defence sector to now allow FDI up to 49% in case such investment provides access to state of the art technology.
The Press Note also makes additions to conditions under 22.214.171.124 of the Consolidated FDI Policy. A summary of the additions made is as follows:
1. Investments by Foreign Institutional Investors through portfolio investments are not permitted.
2. All applications for permission of the government for FDI in defence must be made to the Secretariat of the Foreign Investment Promotion Board.
3. Applications for FDI not exceeding 26% will follow existing procedure. In case of the inflow being for a sum exceeding Rs.1200 Crores, it must be approved by the Cabinet Committee for Economic Affairs (“CCEA”).
4. Applications for FDI exceeding 26% will be examined by the Department of Defence Production (“DoDP”) to examine access to “state of the art” technology. On the basis of the recommendations of the DoDP and the FIPB, the DoDP will seek approval of the Cabinet Committee on Security (“CCS”).
5. A proposal for FDI in excess of Rs.1200 Crores, when the FDI exceeds 26%, where the approval of CCS is necessary will not require any further approval of CCEA.