74% FDI in defence only for new licences, all investments to undergo scrutiny

The central government has clarified that the increase in foreign direct investment (FDI) limits in the defence sector from 49 percent to 74 percent through automatic route will come with added riders. The government will have right to scrutinise any such proposals on the grounds of national security. Similarly, proposals for raising FDI beyond 49 percent in companies that do not need a new industrial licence will require government approval, and will not be cleared through the automatic route.  

The fresh conditions were announced by the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry on September 17.

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The DPIIT note said that FDI upto 74 percent under automatic route will be permitted for companies seeking new industrial licences (new projects). However, infusion of fresh foreign investment upto 49 percent in a company not seeking industrial licence or which already has government approval for FDI in defence will have to declare any change in shareholding pattern or transfer of stake by existing investor for FDI upto 49 percent within 30 days of such change.  

The new FDI policy note also says that all foreign investments in defence sector will be subject to scrutiny on grounds of national security and government reserves the right to review any foreign investment in defence sector that affects or may affect national security.

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The changes in the policy will be effective from the date of the notification under the Foreign Exchange Management Act (FEMA) by the Reserve Bank of India.