The government has permitted 74 per cent foreign direct investment (FDI) under automatic route in the sector with certain conditions

The government’s decision to ease FDI norms in the defence sector will push self-reliance in production and keep national interests and security paramount, Commerce and Industry Minister Piyush Goyal said on Friday. He said that foreign investments in the defence sector would be subject to scrutiny on grounds of national security.

The government has permitted 74 per cent foreign direct investment (FDI) under automatic route in the sector with certain conditions. “Now, FDI is allowed up to 74 per cent through automatic route and beyond 74 per cent to be permitted through government (approval) route. This will enhance ease of doing business and contribute to growth of investment, income and employment. In line with our collective vision of Aatmanirbhar Bharat, amendments will enhance self-reliance in defence production, while keeping national interests and security paramount,” he said in a tweet.

The permit for up to 74 per cent FDI in the defence manufacturing through the automatic route was announced by Finance Minister Nirmala Sitharaman in May while announcing the fourth tranche of the Rs 20 lakh crore stimulus package for the coronavirus-hit economy.

In July 2018, the government had relaxed foreign direct investment norms in the defence sector by allowing up to 49 per cent FDI under the automatic route. The move was aimed at boosting domestic industry as India imports about 70 per cent of its military hardware.

According to the Department for Promotion of Industry and Internal Trade data, defence industries have received FDI equity inflows of USD 9.52 million (Rs 56.88 crore) during April 2000 and March 2020.

Under the government route, foreign investors have to take prior approval of the respective ministry/department, while in the automatic route, the investor just has to inform the Reserve Bank of India after the investment is made.