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FDI in Defence Sector

Focus: GS-3 Indian Economy

Why in News?

The Government of India revised the FDI polic in 2020 and the total FDI inflow reported till May, 2022 is approximately Rs. 494 Crores.

  • The GoI in 2020, has liberalised and allowed FDI under automatic route up to 74% and up to 100% through Government route wherever it is likely to result in access to modern technology.
Policy Reforms brought in by the Department of Defence Production (DDP):
  • Higher multipliers assigned in Offset Policy to attract investment and Transfer of Technology for Defence manufacturing.
  • Specific consultations are done regularly with Foreign Original Equipment Manufacturers (FOEMs).
  • Defence Corridors: Two Defence Corridors have been established; one in Tamil Nadu and another in Uttar Pradesh which provide Plug & Play support to the industries including FOEMs in the Corridor. 
  • Webinars are conducted with Friendly Foreign Countries (FFCs) under the aegis of DDP, Ministry of Defence (MoD) through Indian Missions abroad and Industry Associations with active participation from Indian Defence Industries. 
  • Defence Investor Cell : Defence Investor Cell has been created to provide all necessary information including addressing queries related to investment opportunities, procedures and regulatory requirements for investment in the sector.
About Foreign Direct Investment (FDI):
  • Foreign Direct Investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a Foreign Portfolio Investment by a notion of direct control.
  • FDI may be made either “inorganically” by buying a company in the target country or “organically” by expanding the operations of an existing business in that country.
  • Broadly, FDI includes “mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations, and intra company loans”. In a narrow sense, it refers just to building a new facility, and lasting management interest.  

December 2023