Lok Sabha Question No. 354 (STARRED), answered on 2016-12-09
Subject: FDI in Defence Sector
Ministry: DEFENCE
Asked by: BHARTRUHARI MAHTAB, SATYA PAL SINGH

## GOVERNMENT OF INDIA MINISTRY OF DEFENCE

## DEPARTMENT OF DEFENCE PRODUCTION

## LOK  SABHA

## STARRED QUESTION NO.354

TO BE ANSWERED ON THE 9 TH  DECEMBER, 2016

## FDI IN DEFENCE SECTOR

- *354.  SHRI  BHARTRUHARI MAHTAB: DR. SATYAPAL SINGH:

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 and if so, the details thereof, country-wise;
- (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 DEFENCE                                   (SHRI MANOHAR PARRIKAR)

j{kk ea=h

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(a) to (d): A Statement is laid on the Table of the House.

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## STATEMENT  REFERRED  TO  IN  REPLY  TO  PARTS  (a)  TO  (d)  OF  LOK SABHA STARRED QUESTION NO. 354 FOR ANSWER ON 9.12.2016

(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 2013-14, FDI of US$ 8.22 lakh has been received from UK.  In the year 2014-15, FDI of US$ 0.77 lakh from France and US$ of 0.01 lakh from  Israel  has  been  received.   In  the year 2015-16, FDI  of US$ 0.95 lakh  has  been  received  from  France.    In  the  current  year,  till  September 2016, 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,  by  Licensing Committee,  an  inter  ministerial  body,  which  among  other  things,  also takes into  account security clearance by Ministry of Home Affairs (MHA) and views of Ministry of Defence (MoD). Foreign Investment Promotion Board (FIPB), mandated to recommend approval of the Government in respect of proposals of foreign investment in excess of 49% is an inter ministerial body which inter-alia comprises of representatives of  MHA  and  MoD. FIPB  also  takes  into  account  security clearance of MHA and views of MoD while considering such proposals of foreign investment.

……2/-

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 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  External Security Audit of licensed companies by Intelligence Agencies once in two years and Cyber Security Audit by CERT-IN empanelled Auditors once every year.

The licensable defence items as mentioned in the license, produced by the private manufacturers 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.

- (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 self-reliance and indigenization in defence sector.

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