Delhi Eases Norms For Foreign Investors in Lucrative Indian Defence Sector

The Indian government has relaxed the administrative requirements for foreign investors in the defence sector. The Foreign Investors will be exempted from Reserve Bank of India approval in certain cases.

Recently, the Reserve Bank of India (RBI) said that foreign defence companies will no longer depend on RBI approval to open in-country offices if they have obtained a contract or entered into a related agreement with a state entity such as a Defence Public Sector Undertaking (DPSU).

“Approval of the Reserve Bank of India is not required in cases where government approval or license/permission by the concerned ministry/regulator has already been granted,” said the RBI notice.

“In case of opening a project office relating to defence sector, no separate reference or approval of [the] government of India shall be required if the said non-resident applicant has been awarded a contract by/entered into an agreement with the Ministry of Defence or service headquarters or DPSU.”

The new notice is one of several reforms intended to encourage defence investors in India, the most prominent of which was introduced in 2016 and acknowledged proposals to progress through the “automatic route” – or without government approval – if the investment was equal to 49% or below of a company’s equity. Such investors are, however, required to notify the RBI about the proposal. Security clearance from the Ministry of Defence is also required.

The Foreign direct investment (FDI) in defence require government approval for proposals that exceed 49% of the equity in a local entity. According to the rules, such proposals are also required in the transfers of “modern technology” to Indian industry. Guidelines issued in 2017 also outlined new deadlines to accelerate the approval of FDI proposals that proceed through the government route.

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