FDI in Defence Sector

Table of Contents

FDI in Defence Sector- Relevance for UPSC Exam

GS Paper 3: Indian Economy- Issues relating to planning, mobilization of resources, growth, development and employment.

Recently, Raksha Rajya Mantri Shri Ajay Bhatt informed the Parliament that since the inception of revised FDI policy in Defence sector, the total FDI inflow in Defence Sector reported till May, 2022 is approximately Rs. 494 Crores.

The Union Government in 2020 liberalised FDI rules in defence sector and allowed FDI under automatic route up to 74% and up to 100% through Government route wherever it is likely to result in access to modern technology.

Incentivizing Investment: Higher multipliers assigned in Offset Policy to attract investment and Transfer of Technology for Defence manufacturing.
- Specific consultations are done regularly with Foreign Original Equipment Manufacturers (FOEMs).
Defence Corridor: Two Defence Corridors have been established; one in Tamil Nadu and another in Uttar Pradesh which provide Plug & Play support to the industries including FOEMs in the Corridor.
Customized Incentives: Under the Aerospace & Defence Policy notified by the two State Governments, Customized incentive packages are provided to investors based on investment, employment and project location.
- These incentives may include GST based refunds on sales, Stamp duty concessions on land allotment, Electricity Tax exemption, Capital subsidy and Training subsidy for training workers.
Collaboration with International Partners: Webinars are conducted with Friendly Foreign Countries (FFCs) under the aegis of DDP, Ministry of Defence (MoD) through Indian Missions abroad and Industry Associations with active participation from Indian Defence Industries.
Defence Investor Cell: It has been created to provide all necessary information including addressing queries related to investment opportunities, procedures and regulatory requirements for investment in the sector.
- 1,445 queries have been addressed by the Cell till date.

Highest Ever FDI: In 2014-2015, FDI inflow in India stood at mere 45.15 USD billion as compared to the highest ever annual FDI inflow of USD 83.57 billion reported during the financial year 2021-22.
- It has overtaken last year’s FDI by USD 1.60 billion despite military operation in Ukraine and COVID-19 pandemic.
- India’s FDI inflows have increased 20-fold since FY03-04, when the inflows were USD 4.3 billion only.
FDI in Manufacturing Sector: FDI Equity inflow in Manufacturing Sectors have increased by 76% in FY 2021-22 compared to previous FY 2020-21.
Post-Covid FDI: FDI inflow has increased by 23% post-Covid in comparison to FDI inflow reported pre-Covid in India.
Top FDI Origin Country: In terms of top investor countries of FDI Equity inflow, ‘Singapore’ is at the apex with 27%, followed by U.S.A (18%) and Mauritius (16%) for the FY 2021-22.
Top Sector receiving FDI: ‘Computer Software & Hardware’ has emerged as the top recipient sector of FDI Equity inflow during FY 2021-22 with around 25% share followed by Services Sector (12%) and Automobile Industry (12%) respectively.
- Under the sector `Computer Software & Hardware’, the major recipient states of FDI Equity inflow are Karnataka (53%), Delhi (17%) and Maharashtra (17%) during FY 2021-22.
Top FDI Recipient State: Karnataka is the top recipient state with 38% share of the total FDI Equity inflow reported during the FY 2021-22 followed by Maharashtra (26%) and Delhi (14%).