Government opens Defence Sector to 74% FDI via automated route, adds ‘national security’ clause

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  Government opens Defence Sector to 74% FDI via automated route, adds ‘national security’ clause

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Key points –

1. The Union Cabinet on Tuesday approved the new FDI policy in the Defence sector which allows the foreign direct investment through automatic approval to be increased from 49% to 74%.
2. However, the new policy has a ‘National Security’ clause as a condition which has been proposed by the Ministry of Commerce and Industry.
3. As per the new policy, Foreign Investment in the Defence Sector shall be subject to scrutiny on the ground of National Security and the Government reserves the right to review any foreign investment in the Defence Sector that may affect national security.

Strengthening indigenous manufacturing – 

1. The policy has been introduced in view of reducing dependency on imports in the Defence sector and boosting Make in India, in turn giving more employment and business opportunities to the Indian businesses and boosting self-dependency.
2. Through the policy reforms, the government is seeking to attract foreign players to set up manufacturing units in India.
3. The policy allows to bring FDI up to 49 per cent under the automatic route, and above it can be brought in under the government route. The national security clause is said to be due to the sensitivity of the defence sector.
4. The Government has been focussing on strengthening the Defence sector by boosting indigenous manufacturing and also aiming to increase exports from the sector. The government is optimistically aiming to achieve more than the doubled turnover in the Defence sector by 2025.
5. The government plans to achieve a turn over of Rs 1.75 lakh crore, including exports worth Rs 35,000 crore, by 2025. In 2019, the defence sector, along with the aerospace and shipbuilding industry, was estimated to be worth Rs 80,000 crore of which private investment was merely 20% with somewhere around 17,000 crore.
6. Finance Minister Nirmala Sitharaman had announced in May about the decision to increase FDI in Defence sector while presenting the fourth tranche of the economic stimulus package.
7. She had however said that the import of some weapons and platforms will not be allowed and that certain items banned for imports can only be purchased from within the country.

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