FDI in Defence Sector upto 49% is allowed in the sector through Government route and above 49% through approval of CCS on case-to-case basis

The Government vide Press Note 7 of 2014 Series dated 26 August 2014 has notified revised FDI Policy in defence Sector, according to which FDI upto 49% is allowed in the sector through Government route and above 49% through approval of Cabinet Committee on Security (CCS) on case-to-case basis, wherever it is likely to result in access to modern and state-of-the-art technology in the country. Further, FDI in Defence Sector is subject to obtaining Industrial Licence under the IDR Act, 1951.

The introduction of FDI in the defence sector will not pose any threat as some of the major conditions governing Licensing in Defence Sector are as follows:

(a) The management of the company / partnership firm owning the Industrial Licence should be in Indian hands with majority representation on the Board as well as the Chief Executive of the Company / partnership firm being Resident Indians. This condition is, however, not applicable to cases of foreign investment above 49%.

(b) Adequate safety and security procedures would need to be put in place by the licensee. The Indian Licensed Defence Companies (ILDC) shall comply with the security guidelines applicable to them as per security instructions / architectures prescribed in Security Manual for Licence Defence Industries available at www.ddpmod.gov.in based on their categorization. Some of the important guidelines of the Security Manual includes External Security Audit of the ILDCs by Intelligence Agencies once in two years and Cyber Security Audit by CERT-IN empanelled Auditors once every year.

(c) The licensable defence items as mentioned in the license, produced by the private manufacturers will be primarily sold to the Ministry of Defence. These items may also be sold to other Government entities under the control of the Ministry of Home Affairs, State Governments, Public Sector Undertakings (PSUs) and other valid Defence Licensed Companies without prior approval of Department of Defence Production (DDP). However, for sale of the items to any other entity, the licensee shall take prior permission from DDP, Ministry of Defence.

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