Govt opens Defence Sector to 74% FDI via automated route, adds 'national security' clause

Guwahati: The Union Cabinet has approved a policy for raising the cap on foreign direct investment (FDI) through automatic approval in the defence sector to 74% from 49%, while affixing a 'national security' clause to it.

The Ministry of Commerce and Industry says "foreign investment in the defence sector shall be subject to scrutiny on ground of national security and the government reserves the right to review any foreign investment in the defence sector that may affect national security."

Under the existing policy, the defence industry is allowed to bring FDI up to 49% under the automatic route. Beyond this, it can get FDI under government route, in cases resulting in access to modern technology or for other reasons to be recorded.

As per reports, the national security clause has been provided since defence is a "sensitive sector."

The government reportedly wants foreign original equipment manufacturers (OEMs) to shift operations to India. It also wants private entities to play a bigger role in defence production.

Finance minister Nirmala Sitharaman had announced raising the FDI cap in defence sector through the automatic route to 74% in May. Thereafter, a draft defence production and export promotion policy 2020 was released which spelt out the efforts made to liberalise FDI in the defence sector. It also spoke about how private investment in manufacturing facilities was being encouraged.

The Centre intends to ramp up manufacturing in the defence sector to Rs 1.75 lakh crore, including exports worth Rs 35,000 crore, by 2025. In 2019, production of defence equipment, such as aerospace and shipbuilding industry, stood at around Rs 80,000 crore, of which the contribution of public sector undertakings was around Rs 63,000 crore.

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