FDI in Defence Sector

The Department for Promotion of Industry and Internal Trade (DPIIT), Commerce and Industry Ministry raised the FDI limit for the Defence sector through the automatic route to 74 percent from 49 percent.

Key Points

  • As per the Ministry, this limit is subject to access to modern technology or for ‘other reasons’ that needs to be recorded.
  • FDI of up to 74% would be allowed for companies that are seeking new industrial licenses. All foreign investments in the sector would be subjected to security clearance provided by the Home Ministry and as per the guidelines of the Ministry of Defence.
  • The Finance Ministry has now permitted FDI in the Defence sector up to 74 percent under the automatic route, notifying the changes required to FEMA (Non-Debt Instruments) rules.
  • The FDI in the Defence sector will also be subjected to scrutiny in terms of national security.

Department for Promotion of Industry and Internal Trade (DPIIT)

It is a department under the Commerce and Industry Ministry which formulates and implements developmental measures for the growth of the industrial sector. The department also has the authority of increasing and facilitating the foreign direct investment (FDI) flows in India.

FEMA

FEMA i.e. Foreign Exchange Management Act, 1999 is an act that consolidates and amend the laws related to foreign exchange in India with an aim to facilitate external trade and payments and to promote the development of the foreign exchange market in the country.  FEMA was passed in 1999 to replace the Foreign Exchange Regulation Act (FERA).

Amendments to FEMA (Non-Debt Instruments) Rules

In April 2020, the finance Ministry amended the FEMA (NDI) Rules 2019. As per the amendments, a new Rule 7A was included according to which the pricing guidelines specified under the FEMA NDI Rules will apply to the subscription of shares where a non-resident India acquires rights shares that were originally offered to a person resident in India and were subsequently renounced.

Other than this, amendments were made in the conditions for FPI disinvestment, insurance Intermediaries, and single-brand retail trading.