National security clause added to defence FDI hike to 74 per cent

New Delhi, Sep 10: A national security clause has been inserted into the new policy raising the cap of foreign direct investment through approval in the defence sector from 49 per cent to 74 per cent.

The policy was approved by the Union Cabinet on Tuesday. The new condition says, foreign investment in the Defence Sector shall be subject to scrutiny on ground of National Security and the Government reserves the right to review any foreign investment in the Defence Sector that may affect national security.

The defence industry can bring FDI up to 49 per cent under the automatic route and above it under the government route, wherever it is likely to result in access to modern technology or for other reasons to be recorded, the existing policy says.

The including of the national security clause is in addition to the four conditions specific to FDI in the defence manufacturing sector, which also includes security clearances and guidelines of the Defence Ministry.

It may be recalled that Finance Minister, Nirmala Sitharaman had in May announced the raising of the FDI cap in the defence sector through the automatic route to 74 per cent.

Last month the draft Defence Production and Export Promotion Policy had mentioned the efforts made to liberalise FDI in the sector. This was done to attract firms to open manufacturing facilities and also expand India's presence in the supply chains internationally.

While no specific reason was given as to why the national security clause was introduce, reports say that this was done because defence is a sensitive sector.