The decision to permit up to 74 per cent FDI in the defence manufacturing through the automatic route was announced by Finance Minister Nirmala Sitharaman in May while announcing the fourth tranche of the Rs 20 lakh crore stimulus package for the coronavirus-hit economy.
As per the current FDI policy, 100 per cent overseas investments are permitted in the defence industry — 49 per cent under the automatic route, while beyond that the government approval is required.
In July 2018, the government had relaxed foreign direct investment norms in the defence sector by allowing up to 49 per cent FDI under the automatic route. The move was aimed at boosting domestic industry as India imports about 70 per cent of its military hardware.
According to the DPIIT data, India’s defence industry has received FDI equity inflows of USD 9.52 million (Rs 56.88 crore) during April 2000 and March 2020.
Under the government route, foreign investors have to take prior approval of the respective ministry/department, while in the automatic route, the investor just has to inform the RBI after the investment is made.
Total FDI into India increased by 18 per cent to USD 73.45 billion in 2019-20.