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FDI in Defence Sector in India

% of Equity/ FDI Cap
Entry Route
Defence Industry subject to Industrial license under the Industries (Development & Regulation) Act, 1951; and 
Manufacturing of small arms and ammunition under the Arms Act, 1959
Automatic route up to 49% 

Government route beyond 49% wherever it is likely to result in access to modern technology or for other reasons to be recorded.

Other Conditions
i. Infusion of fresh foreign investment within the permitted automatic route level, in a company not seeking industrial license, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, will require Government approval.
ii. Licence applications will be considered and licences given by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, in consultation with Ministry of Defence and Ministry of External Affairs. 
iii. Foreign investment in the sector is subject to security clearance and guidelines of the Ministry of Defence.
iv. Investee company should be structured to be self-sufficient in areas of product design and development. The investee/joint venture company along with manufacturing facility, should also have maintenance and life cycle support facility of the product being manufactured in India.

(1) FDI  policy for Defence Sector in India is prescribed Clause 5.2.6 of the Consolidated FDI Policy Circular of 2016 (D/o IPP F. No. 5(1)/2016-FC-1 Dated the June 07, 2016) issued by Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India.
(2) Clause 5.2.6 was modified by Press Note No. 5 of 2016 Series(File No. 5/4/2016-FC-I dated 24th June 2016) issued by DIPP - link
(3) Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Eighteenth Amendment) Regulations, 2016 (7th Dec, 2016) - link

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