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Union Cabinet raised the FDI limit in Defence sector from 26 percent to 49 percent

Aug 7, 2014 16:12 IST

Union Cabinet on 6 August 2014 raised the Foreign Direct Investment (FDI) limit in Defence sector from 26 percent to 49 percent.

The FDI ceiling in the sensitive defence sector was hiked with the condition that control in joint ventures for manufacturing of defence equipment will remain in Indian hands.

Currently, the domestic defence sector imports 70 percent of its military hardware. The move is aimed to boost the domestic industry.

Foreign investment in defence will be through the approval route. The investment will be cleared by the Foreign Investment Promotion Board (FIPB).

Though the 49 per cent cap will be general rule for the defence sector, 100 per cent overseas ownership will be allowed in case the investments comes bundled with state of the art technology. Such investment proposals will have to be cleared by the Cabinet Committee on Security (CCS).

In companies with a 49 per cent foreign holding, more than one Indian company will be allowed to hold the 51 per cent share, unlike the present norm that mandates that a single Indian entity should own and control the entire 51 per cent, a move that will encourage more domestic players to enter the sector.

The FDI was allowed in the defence sector in 2001 and since then only 5 million US dollar of FDI has flowed into India.

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