Context:The Centre has raised the foreign direct investment (FDI) limit for the defence sector through the automatic route to 74 per cent from 49 per cent.The raised limits are for companies seeking new industrial licenses.

New FDI guidelines

  • Now, FDI is allowed up to 74 per cent through automatic route and beyond 74 per cent through the government route.
  • Licence applications will be considered by the Department for Promotion of Industry and Internal Trade (DPIIT) in consultation with the Ministry of Defence and Ministry of External Affairs. 
  • Conditions:
    • FDI up to 74 per cent under automatic route shall be permitted only for companies seeking new industrial licences. 
    • FDI will be allowed through the government route beyond 74 per cent wherever it is likely to result in access to modern technology or for other reasons to be recorded.
    • To protect India’s security concerns, foreign investment in the sector is subject to security clearance by the Ministry of Home Affairs and as per guidelines of the Ministry of Defence.


  • This will enhance Ease of Doing Business and contribute to growth of investment, income and employment.
  • It may bring in more investments and fresh technology. 
  • According to the Department for Promotion of Industry and Internal Trade (DPIIT) data, defence industries have received FDI equity inflows of $9.52 million (₹56.88 crore) during April 2000 and March 2020.

Foreign direct investment (FDI) 

  • It happens when a company takes controlling ownership in a business entity in another country. 

  • With FDI, foreign companies are directly involved with day-to-day operations in the other country. 

  • This means they aren’t just bringing money with them, but also knowledge, skills and technology.

FDI in India

  • FDI is an important monetary source for India's economic development. 

  • Economic liberalisation started in India in the wake of the 1991 crisis and since then, FDI has steadily increased in the country.

Routes through which India gets FDI

  • Automatic route: The non-resident or Indian company does not require prior nod of the RBI or government of India for FDI.

  • Govt route: The government's approval is mandatory. 

    • The company will have to file an application through Foreign Investment Facilitation Portal, which facilitates single-window clearance. 

    • The application is then forwarded to the respective ministry, which will approve/reject the application in consultation with the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce. DPIIT will issue the Standard Operating Procedure (SOP) for processing of applications under the existing FDI policy.

Sectors which come under up to 100% Automatic Route' category are

  • Infrastructure Company in the Securities Market: 49%

  • Insurance: up to 49%

  • Medical Devices:up to 100%

  • Pension: 49%

  • Petroleum Refining (By PSUs): 49%

  • Power Exchanges: 49%

Sectors which come under the 'up to 100% Government Route' category are

  • Banking & Public sector: 20%

  • Broadcasting Content Services: 49%

  • Core Investment Company: 100%

  • Food Products Retail Trading: 100%

  • Mining & Minerals separations of titanium bearing minerals and ores: 100%

  • Multi-Brand Retail Trading: 51%

  • Print Media (publications/ printing of scientific and technical magazines/ specialty journals/ periodicals and facsimile edition of foreign newspapers): 100%

  • Print Media (publishing of newspaper, periodicals and Indian editions of foreign magazines dealing with news & current affairs): 26%

  • Satellite (Establishment and operations): 100%

FDI prohibition

There are a few industries where FDI is strictly prohibited under any route. These industries are

  • Atomic Energy Generation
  • Any Gambling or Betting businesses
  • Lotteries (online, private, government, etc)
  • Investment in Chit Funds
  • Nidhi Company
  • Agricultural or Plantation Activities (although there are many exceptions like horticulture, fisheries, tea plantations, Pisciculture, animal husbandry, etc)
  • Housing and Real Estate (except townships, commercial projects, etc)
  • Trading in TDR’s
  • Cigars, Cigarettes, or any related tobacco industry.

Source: https://www.business-standard.com

Image source: Economic Times