Govt raises FDI limit in defence sector to 74% through automatic route with 'national security' clause

The Centre has relaxed foreign direct investment (FDI) norms in the defence sector by allowing 74% FDI under the automatic route but it reserves the right to scrutinise any investment proposal, which it thinks may impact India’s national security.

The “national security” clause is now a part of the proposal of relaxed FDI rules, which the Union Cabinet had approved on Tuesday, an official said.

“In the sensitive areas such as defence, the government always reserves such rights. That is understood. But to make it more explicit, we have added the clause in black and white,” according to the official.

Sources in the government, however, said that the clause was inserted on the insistence of commerce ministry, for which reasons were not given.

Prime Minister Narendra Modi had announced his government’s decision last month that 74% FDI in defence production will be through automatic route. The move was aimed at giving a push to ‘Aatmanirbhar Bharat’ in defence manufacturing.

Subsequent to that, Finance Minister Nirmala Sitharaman had said that the import of some weapons and platforms will be restricted in the defence sector. She had said the government will notify a list of weapons and platforms which will not be allowed for importation. Additions will be made to the list on an annual basis as the country builds capacity.

The RSS-affiliated Swadeshi Jagaran Manch, however, had red flagged the raising of FDI limit in defence production to 74%, saying it might lead to undermining of Indian vendors and domestic players.

In value terms, India imports around 70% of its high-tech defence hardware such as aircraft, ships, submarines and missiles.