The recently notified policy for foreign direct investment (FDI) in India’s defence sector may bring in more investments and fresh technology. However, the inflows are subject to time-bound security clearances and proper linkages with the government’s defence procurement procedures, feel some experts.
According to the latest policy, approved last week by the Cabinet, FDI will now be allowed beyond 49 per cent to 74 per cent under the automatic route. Investment through the government route will be allowed beyond 74 per cent in cases where such FDI is “likely” to result in access to modern technology or where such an investment above the new automatic route is required for “other reasons” to be recorded.
“This will enhance Ease of Doing Business and contribute to growth of investment, income and employment,” Minister of Commerce and Industry Piyush Goyal tweeted on Friday, following the development.
Foreign investment in the sector is “subject to security clearance by the Ministry of Home Affairs” and shall be as per guidelines of the Ministry of Defence, according to a press note by the Department for Promotion of Industry and Internal Trade that was notified late on Thursday.
“Major defence firms in countries like Israel, the US, France and Russia have been waiting for clarity on this FDI policy, which would now give them wider access to controlling even the technology they bring in,” said Atul Pandey, a partner in Khaitan & Co. “They will now be looking to invest in India,” he said. While the revised FDI policy in the defence sector allows scrutiny of “any” investments in the sector that may affect national security, Pandey feels that the clause may have limited impact for the time being.
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