NEW DELHI — The Union Government radically liberalized the Foreign Direct Investment (FDI) regime today, with the objective of providing a major boost to employment and job creation in India. The decision was taken at a high-level meeting chaired by Prime Minister Narendra Modi today, according to a statement released by his office.

Present rules allow 49 percent of foreign ownership in the equity of a domestic company. For higher percentages, government approval was required on a case-by-case basis as officials weigh the impact of foreign owners commanding access to 'state-of-art' technology in the country.

"Foreign investment beyond 49 percent has now been permitted through government approval route in cases resulting in access to modern technology in the country or for other reasons to be recorded," the government statement reads. "The condition of access to 'state-of-art' technology in the country has been done away with. FDI limit for defense sector has also been made applicable to Manufacturing of Small Arms and Ammunitions covered under Arms Act 1959," it adds.

"In the last 24 months barely any FDI in defense manufacturing has entered India. This is not in line with government's Make in India initiative, thus this change has been made to encourage original equipment manufacturers (OEMs) to make investments and reach foreign participation greater that 49 percent," a source in the Ministry of Defense said.

"These changes may make it easier for cases for greater than 49 percent FDI applications from the OEMs," Ankur Gupta, a defense analyst with Ernst and Young India said.

In February last year, Indian Deputy Defense Minister Rao Inderjit Singh informed parliament that a revised FDI Policy in the defense sector was in the works, requiring approval from the Cabinet Committee on Security (CCS) in cases of foreign ownership exceeding 49 percent.

Rao further noted that the management of the company and the domestic partnership firm owning the industrial license for a given product should be in Indian hands, with majority representation on the board and the chief executive of the company being resident Indian. This condition is, however, not applicable to cases of foreign investment above 49 percent.

So far no clearance has been granted by Indian government to allow 100 percent FDI in defense sector.

Until now, overseas defense companies are not investing in India's defense industry through the FDI route.

India's Defense Minister Manohar Parrikar told Parliament last month that only $0.16 million had been invested via the FDI route since 2014.

Pierre de Bausset, president of Airbus Group India, had earlier said that his company needed to own a majority share in joint ventures to justify more investment.

Only DCNS of France has submitted a proposal to the government to set up a 100 percent subsidiary in India for Air Independent Propulsion (AIP) technology in submarines, which is awaiting clearance.

E-mail: vraghuvnshi@defensenews.com

Vivek Raghuvanshi is the India correspondent for Defense News.

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