Lok Sabha Question No. 2164 (UNSTARRED), answered on 2017-07-28
Subject: FDI in Defence Production
Ministry: DEFENCE
Asked by: K.R.P. PRABAKARAN, BHEEMRAO BASWANTHRAO PATIL

## GOVERNMENT OF INDIA MINISTRY OF DEFENCE DEPARTMENT OF DEFENCE PRODUCTION

## LOK  SABHA

## UNSTARRED QUESTION NO.2164

TO BE ANSWERED ON THE 28 TH  JULY, 2017

## FDI IN DEFENCE PRODUCTION

2164.  SHRI  K.R.P. PRABAKARAN:

SHRI BHEEMRAO B. PATIL:

Will the Minister of DEFENCE j{kk ea=h be pleased to state:

- (a) whether the Foreign Direct Investment (FDI) in defence sector has increased in the country during the last three years and the current year, if so, the details thereof, countrywise;
- (b) the  mechanism  in  place to ensure that the security of the nation is not compromised from such FDI in defence sector;
- (c) whether the Government has received representations / suggestions from various quarters in this regard and if so, the details thereof along with the action taken / being taken by the Government on such representations / suggestions; and
- (d) the other steps taken / being taken by the Government to maintain a fine balance between FDI in defence sector and security of the nation?

## A    N    S    W    E    R

MINISTER OF STATE IN THE MINISTRY OF DEFENCE

(DR. SUBHASH BHAMRE)

र  ा रा य मं ी

(डा. सुभाष भामरे)

(a) to (d): A statement is attached.

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## STATEMENT  REFERRED  TO  IN  REPLY  TO  PARTS  (a)  TO  (d)  OF  LOK SABHA UNSTARRED QUESTION NO. 2164 FOR ANSWER ON 28.7.2017

(a) Foreign Direct Investment (FDI) Policy has been gradually liberalized in the last two years. Since defence projects involve long gestation period and investment inflow takes time even after the projects are approved and contracts awarded, there is always a time lag before the impact of FDI is visible.  In  the  year  2014-15,  FDI  of  US$  0.77  lakh    and  US$  0.01  lakh  has been received from France and Israel respectively. In the year 2015-16, FDI of US$ 0.95 lakh has been received from France. In the year 2016-17, FDI of US$ 0.01 lakh  has been received from Israel. In the current year, till May 2017, no FDI inflow has been received. (b) & (d: Government vide Press Note No. 5 of 2016 Series dated 24.06.2016 has  notified  revised  Foreign  Direct  Investment  (FDI)  policy  on  various sectors including Defence. According to the new policy, FDI up to 49% is under  automatic  route  and  beyond  49%  is  through  government  route wherever it is likely to result in access to modern technology or for other reasons to be recorded. Further  Defence  Industry  sector  is  subject  to  industrial  licensing under Industries (Development & Regulation) Act 1951 and Arms Act, 1959. The  licence  applications  are  examined  by  Licensing  Committee, an  interministerial  body,  which  among  other  things,  also  takes  into  account security clearance by Ministry of Home Affairs (MHA) and views of Ministry of Defence (MoD). With the abolition of FIPB, concerned Ministries have been mandated to  recommend  approval  of  the  Government  in  respect  of  proposals  of foreign  investment  in  excess  of  49%  after  taking  into  account  security clearance  of  Ministry  of  Home  Affairs  (MHA)  and  views  of  Ministry  of External Affairs (MEA),  Reserve  Bank  of India (RBI), Department  of Revenue (DoR) and Department of Industrial Policy and Promotion (DIPP). Government  has  also  put  in  place  a  Security  Manual  for  Licensed Defence Industries. The security manual prescribes guidelines on physical, information, documentation, cyber and personnel security aspects.

Security  is  categorised  in  'A', 'B' & 'C' categories depending upon the

......2/-

products/ weapons/ equipments manufactured by them. Defence licensees have  to  adhere  to  the  safety  and  security  procedures  laid  down  therein based on their categorisation. Security Manual also provides for Security Audit  of  licensed  companies  by  Intelligence  Agencies  once  in  two  years and  Cyber  Security  Audit  by  CERT-IN  empanelled  Auditors  once  every year. For the licenses granted under IDR Act, the items so produced will be primarily sold to the Ministry of Defence. These items may also be sold to other  Government  entities  under  the  control  of  the  Ministry  of  Home Affairs, State Governments, Public Sector Undertakings (PSUs) and other valid Defence Licensed Companies without prior approval of Department of Defence  Production  (DDP).  However,  for  sale  of  the  items  to  any  other entity,  the  licensee  shall  take  prior  permission  from  DDP,  Ministry  of Defence.  Further,  for  licenses  granted  under  Arms  Act,  the  items  so produced shall be sold to the Central Government or the State Governments with the prior approval of the Ministry of Home Affairs. (c) After review of FDI policy in June, 2016, three representations have been received from defence employee federations regarding change in FDI policy in defence sector. The replies have been furnished stating that the policy has  been reviewed with an aim to  promote  investment and technology  transfer  in  defence  manufacturing  sector.  This  sector  needs significant capital investment and infusion of technology for which foreign investment can play a critical role. The FDI in the sector could be the most trusted  route  to  technology  transfer  which  would  help  in  increasing  the defence production base and providing the much needed impetus to selfreliance and indigenization in defence sector.

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