The government will not allow portfolio investment in country’s defence sector as a part of its foreign direct investment (FDI) policy regime.
According to the consolidated FDI policy released by the department of industrial policy and promotion (DIPP) on Thursday, foreign institutional investors (FIIs) and foreign portfolio investors (FPIs) have been barred from investing in the defence sector.
According to the policy, effective April 17, “FPI/FII (through portfolio investment) in companies holding defence licence as on August 22, 2013, will remain capped at the level existing as on the said date,” the circular said. It further clarified that even if the level of such investment falls below the capped level, “no fresh FPI and FII is permitted”.\
Currently, 26 per cent FDI is permitted in the sector. The Cabinet raised this later without specifying the upper limit.
“The sector should be liberated in true sense. There are KYC norms for FIIs and therefore there is no need to bar them. These are regulated entities and so there may not be any necessity to disallow them,” Punit Shah, co-head of tax, KPMG, said.