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RBI/2014-15/340
A.P. (DIR Series) Circular No. 46
December 8, 2014
To
All Category – I Authorised Dealer banks
Madam/Sir,
Foreign Direct Investment (FDI) in India – Review of FDI policy –Sector
Specific conditions- Defence
Attention of Authorised Dealer Category – I (AD Category-I) banks is invited
to Regulation 14 and Annex B of Schedule 1 to the Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident outside India) Regulations,
2000 notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000, as
amended from time to time. In terms of Schedule 1 to the Notification ibid,
Foreign Direct Investment (FDI) up to 26 per cent is permitted under Government
route in Defence industry subject to license under the Industries (Development &
Regulation) Act, 1951. Proposals for FDI above 26 per cent would be subject to
approval of Cabinet Committee on Security on case to case basis, wherever it is
likely to result in access to modern and ‘state-of-art’ technology in the
country.
- The extant FDI policy for defence sector has since been reviewed.
Department of Industrial Policy and Promotion (DIPP) has now provided a list
of defence items as finalised by Department of Defence Production, Ministry
of Defence and has clarified that items not in the list would not require
industrial license for defence purposes. Dual use items, having military as
well as civilian applications, other than those specially mentioned in the
list, would also not require Industrial License from Defence angle.
Department of Defence Production, Ministry of Defence, has finalised the
‘Security Manual for Licensed Defence Industry’.
- Further, on a review, effective from August 26, 2014, foreign
investment i.e. FDI, FIIs, RFPIs, NRIs, FVCIs and QFIs upto 49% under
government route shall be permitted in defence sector subject to the
conditions specified in the Press Note 7 (2014 Series) dated August 26,
2014. Portfolio investment (RFPI/FII/NRI/QFI) and FVCI investment will not
exceed 24% of the total equity of the investee company. Portfolio investment
will be under automatic route.
- The listed investee company engaged in defence sector, in
accordance with the guidance provided by the Press Note 7 (2014 Series) ,
shall immediately allocate limits for portfolio investment for RFPI
(including QFI and FII), NRI (not exceeding 10%) and FVCI within the default
portfolio investment limit of 24% being permitted now and approach Reserve
Bank, Central Office, Foreign Investment Division, Mumbai so that allocated
limits can be monitored by the Reserve Bank.
- A copy each of Press Note No.3 , No.6, No. 7 (2014 Series) dated
June 26, 2014, July 8, 2014 and August 26, 2014 respectively issued in this
regard by DIPP, Ministry of Commerce & Industry, Government of India are
enclosed.
- Reserve Bank has since amended the Principal Regulations through
the Foreign Exchange Management (Transfer or Issue of Security by a Person
Resident outside India) (Thirteenth Amendment) Regulations, 2014 notified
vide
Notification No. FEMA. 319/2014-RB dated September 5, 2014, c.f. G.S.R.
No. 799(E) dated November 13, 2014.
- Authorised Dealer banks may bring the contents of this circular to
the notice of their constituents and customers concerned.
- The directions contained in this circular have been issued under
sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of
1999) and are without prejudice to permissions / approvals, if any, required
under any other law.
Yours faithfully,
(B.P. Kanungo)
Principal Chief General Manager
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