The DPIIT had issued a Press Note on the matter in September

New Delhi: The government on Tuesday notified changes in the Foreign Exchange Management Act permitting foreign direct investment (FDI) in defence production up to 74% on the automatic route and beyond that on the government route wherever it is likely to result in access to modern technology.

The government has also inserted a new condition in the Act related to beneficial ownership.

“Provided also that a Multilateral Bank or Fund, of which India is a member, shall not be treated as an entity of a particular country nor shall any country be treated as the beneficial owner of the investments of such Bank or Fund in India,” the Department of Economic Affairs said in a notification.

As per the notification, FDI up to 74% under automatic route shall be permitted for companies seeking new industrial licenses and foreign investment in the sector will be subject to security clearance by the home affairs ministry.

License applications will be considered by the Department for Promotion of Industry and Internal Trade in consultation with the ministries of defence and external affairs.

The DPIIT had issued a Press Note on the matter in September.

The DEA also mandated that the infusion of fresh foreign investment up to 49%, in a company not seeking industrial license or which already has government approval for FDI in defence, would have to submit a declaration with the defence ministry in cases of change in equity/shareholding pattern or transfer of stake by existing investor to new foreign investor, for FDI up to 49%. This, as per the notification, needs to be done within a period of thirty days of such change and any proposal for raising FDI beyond 49% from such companies will require government approval.

“Investee company shall be structured to be self-sufficient in the areas of product design and development and the investee or joint venture company along with the manufacturing facility, shall also have maintenance and life cycle support facility of the product being manufactured in India,” the department said in the notification.

The government also said that foreign investments in the defence sector will be subject to scrutiny on grounds of national security and that it reserves the right to review any foreign investment in the sector that affects or may affect national security.