The government has decided to fix 49 per cent as the upper limit for foreign direct investment (FDI) in defence manufacturing, subject to approval by Cabinet Committee on Security (CCS).
A note, approved and circulated by the Prime Minister’s Office (PMO) after the July 16 meeting chaired by the Prime Minister, states that FDI up to 26 per cent in defence manufacturing would be through the Foreign Investment Promotion Board (FIPB).
Any proposal involving FDI of 26 per cent to 49 per cent upper limit, however, will be decided by the CCS if it entails induction of state-of-the-art technology.
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“The finer details about what will constitute the state-of-the-art technology and high-end technology will be spelled out after the Cabinet gives its formal approval to the proposal that is likely to happen next week. There is lot of confusion about various aspects of the FDI in defence. It is absolutely wrong to say that the limit can stretch up to 100 per cent. This is why the 49 per cent FDI upper limit will be reflected in the Cabinet note,” a senior official of the Department of Industrial Policy and Promotion (DIPP) said.
A one-page note earlier issued by the Commerce and Industry Ministry on July 16 had indicated that FDI in defence manufacturing up to 26 per cent would be under the automatic approval route and above 26 per cent, without any upper ceiling, would be taken up by CCS on a case-to-case basis.
The mood among the U.S. companies over the recent initiatives to open FDI in various sectors has been one of caution but with a positive outlook.
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Internal note
In an internal note circulated to its member companies in U.S. and India, the United States India Business Council (USIBC) states that they have been indicated by the government thattechnology acquisition will be a key determinant for whether up to 49 per cent investment will be approved.