MINISTRY OF FINANCE
(Department of Economic Affairs)
NOTIFICATION
New Delhi, the 8th December, 2020

S.O. 4441 (E).—In exercise of the powers conferred by clauses (aa) and (ab) of sub-section (2) of section 46 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Central Government hereby makes the following rules further to amend the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, namely:-

1. Short title and commencement. – (1) These rules may be called the Foreign Exchange Management (Non-debt Instruments) (Fourth Amendment) Rules, 2020.

(2)  They shall come into force on the date of their publication in the Official Gazette.

2. In the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, in rule 6, in clause (a), after the third proviso, the following proviso shall be inserted, namely:-

Provided also that a Multilateral Bank or Fund, of which India is a member, shall not be treated as an entity of a particular country nor shall any country be treated as the beneficial owner of the investments of such Bank or Fund in India.

3. In the principal rules, in Schedule 1, in the Table,-

(i) for serial number 6 and the entries relating thereto, the following serial number and entries shall be substituted, namely:-

S. No. Sector/Activity Sectoral Cap Entry Route
(1) (2) (3) (4)
“6 Defence
6.1 Defence Industry subject to Industrial license under the Industries (Development and Regulation) Act, 1951 and Manufacturing of small arms and ammunition under the Arms Act, 1959 100% Automatic up to 74%

Government route beyond 74% wherever it is likely to result in access to modern technology or for other reasons to be recorded

6.2 Other Conditions
a) FDI up to 74% under automatic route shall be permitted for companies seeking new industrial licenses.

b) Infusion of fresh foreign investment up to 49%, in a company not seeking industrial license or which already has Government approval for FDI in Defence, shall submit a declaration with the Ministry of Defence in cases of change in equity/shareholding pattern or transfer of stake by existing investor to new foreign investor, for FDI up to 49%, within a period of thirty days of such change and any proposal for raising FDI beyond 49% from such companies shall require Government approval.

c) License applications will be considered by the Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, in consultation with Ministry of Defence and Ministry of External Affairs.

d) Foreign investment in the sector shall be subject to security clearance by the Ministry of Home Affairs and as per guidelines of the Ministry of Defence.

e) Investee company shall be structured to be self-sufficient in the areas of product design and development and the investee or joint venture company along with the manufacturing facility, shall also have maintenance and life cycle support facility of the product being manufactured in India.

f) Foreign investments in the Defence sector shall be subject to scrutiny on grounds of national security and Government reserves the right to review any foreign investment in the Defence sector that affects or may affect national security.”

[F. No. 01/05/EM/2019]

ANAND MOHAN BAJAJ,Addl. Secy.

Note: The principal rules were published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii), vide number S.O.3732 (E), dated the 17th October, 2019 and subsequently amended vide numbers S.O. 4355 (E), dated the 5th December 2019, S.O. 1278 (E), dated the 22nd April, 2020 and S.O. 1374 (E), dated the 27th April, 2020 and S.O. 2442 (E), dated the 27th July, 2020.

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