FAQs on FDI in Defence Sector

A.1 DIPP vide Press Note No. 5 of 2016 Series dated 24.06.2016 notified review of Foreign Direct Investment (FDI) Policy on various sectors including which includes conditions related to FDI in defence at Para 5 of the said Press Note. According to the revised guidelines, Foreign Investment Cap upto 49% is allowed through automatic route and beyond 49% under Government route, wherever it is likely to result in access to modern technology or for other reasons to be recorded. The foreign investment in defence sector is further subject to industrial license under the Industries (Development & Regulation Act), 1951. The detailed guidelines in this regard may be seen under the Press Note available at DIPP website (www.dipp.nic.in followed by link Acts & Rules).
A.2 As per the guidelines notified vide Press Note 5 of 2016 Series dated 24.06.2016, infusion of fresh foreign investment in defence sector upto 49% is allowed through automatic route and beyond 49% under Government route, wherever it is likely to result in access to modern technology or for other reasons to be recorded. However for change in ownership pattern of transfer of stakes by existing investor to new foreign investor, Government approval will be required.
A.3 A company can apply online at Foreign Investment Facilitation Portal (FIFP), Department of Industrial Policy & Promotion, Ministry of Commerce & Industry website (www.fifp.gov.in) for obtaining necessary approval for entering into defence sector. The company may also visit FIFP’s website for further details.
A.4 The Government route as notified in Press Note 5 of 2016 Series dated 24.06.2015 is a Foreign Investment Promotion Board (FIPB) route. Subsequent to abolition of the FIPB by the Government vide O.M No. 01/01/FC12017 -FIPB dated the 5th June 2017, the work of granting government approval for foreign investment under the extant FDI Policy and FEMA Regulations, has been entrusted to the concerned Administrative Ministries/Departments. An investor can seek approval for foreign investment in defence sector through Foreign Investment Facilitation Portal (FIFP), Department of Industrial Policy & Promotion, Ministry of Commerce and Industry.
A.5 FDI in defence sector is allowed only for undertaking manufacturing of licensable defence items notified by DIPP vide Press Note 3 of 2014 Series (www.dipp.gov.in followed by Acts and Rules under Press Notes)
A.6 Manufacturing activity related to licensable defence items is covered under FDI policy in defence sector which is further subject to obtaining license for defence sector under Arms Act 1959/Arms Rules 2016 or IDR Act, 1951.
A.7 The Ministry of Defence is not in a position to give purchase guarantee for products to be manufactured. However, the planned acquisition programme for such equipments and overall requirements would be made available to the extent possible.
A.8 Deputy Secretary(DIP), Room No. 8, H-Block, New Delhi [Tel: 91-11- 23010518, Telefax: 91-11- 2379 4687] At Joint Secretary level, work is being looked after by Joint Secretary (DIP), Room No. 134-B, South Block, New Delhi, [Tel: 91-11- 23015505].
A.9 As per the FDI statistics available at DIPP’s website, an FDI inflow of US$5.12 million (25.51 crores) has been received in the country till September 2017 (as per data available on DIPP’s website).
A.10 Since May, 2001 after opening the defence production sector for 100% participation in private sector, so far 36 JVs/FDI proposals have been approved for manufacture of wide range of licensable defence items.
A.11 Presently, majority of our defence capital requirements are made through imports. Defence is a sector driven by high-end technologies and innovations. By allowing higher FDI in the defence sector, the global companies having high-end technologies can set up their manufacturing base in India, thereby resulting in creation of large employment opportunities, saving of foreign exchange and increasing indigenisation and self-reliance in our defence preparedness. However, the sector being strategic and sensitive, calibrated and gradual approach is desirable.
A.12 Yes. The Government has recently finalised and put in public domain, a Security Manual for licensed Private Sector Companies engaged in the manufacturing of defence equipments. The Security Manual prescribes detailed guidelines in respect of physical, documents, IT and security aspects to be followed by various defence sector private companies.