FDI in Defence Production
Foreign Direct Investment (FDI) Policy has been gradually liberalized in the last two years. Since defence projects involve long gestation period and investment inflow takes time even after the projects are approved and contracts awarded, there is always a time lag before the impact of FDI is visible. In the year 2014-15, FDI of US$ 0.77 lakh and US$ 0.01 lakh has been received from France and Israel respectively. In the year 2015-16, FDI of US$ 0.95 lakh has been received from France. In the year 2016-17, FDI of US$ 0.01 lakh has been received from Israel. In the current year, till May 2017, no FDI inflow has been received.
Government vide Press Note No. 5 of 2016 Series dated 24.06.2016 has notified revised Foreign Direct Investment (FDI) policy on various sectors including Defence. According to the new policy, FDI up to 49% is under automatic route and beyond 49% is through government route wherever it is likely to result in access to modern technology or for other reasons to be recorded.
Further Defence Industry sector is subject to industrial licensing under Industries (Development & Regulation) Act 1951 and Arms Act, 1959. The licence applications are examined by Licensing Committee, an inter-ministerial body, which among other things, also takes into account security clearance by Ministry of Home Affairs (MHA) and views of Ministry of Defence (MoD).
With the abolition of FIPB, concerned Ministries have been mandated to recommend approval of the Government in respect of proposals of foreign investment in excess of 49% after taking into account security clearance of Ministry of Home Affairs (MHA) and views of Ministry of External Affairs (MEA), Reserve Bank of India (RBI), Department of Revenue (DoR) and Department of Industrial Policy and Promotion (DIPP).
Government has also put in place a Security Manual for Licensed Defence Industries. The security manual prescribes guidelines on physical, information, documentation, cyber and personnel security aspects. Security is categorised in ‘A’, ‘B’ & ‘C’ categories depending upon the products/ weapons/ equipments manufactured by them. Defence licensees have to adhere to the safety and security procedures laid down therein based on their categorisation. Security Manual also provides for Security Audit of licensed companies by Intelligence Agencies once in two years and Cyber Security Audit by CERT-IN empanelled Auditors once every year.
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