Defence Production Law

Friday, August 7, 2015

New Delhi: In order to address the issues related to national security arising as a result of acquisition and merger by foreign companies in the defence sector, necessary safeguards have been incorporated into conditions of Industrial Licenses and FDI Policy. Some of the major conditions in this regard are as follows :

• FDI upto 49% is allowed in the defence sector through Government route and above 49% through approval of Cabinet Committee on Security (CCS) on case-to-case basis, wherever it is likely to result in access to modern and state-of-the-art technology in the country.

• The management of the company/partnership firm owning the Industrial Licence should be in Indian hands with majority representation on the Board as well as the Chief Executive of the Company/partnership firm being Resident Indians. This condition is, however, not applicable to cases of foreign investment above 49%.

• Chief Security Officer (CSO) of the investee / joint venture company should be resident Indian citizen.

• Adequate safety and security procedures would need to be put in place by the licensee. The Indian Licensed Defence Companies (ILDCs) shall comply with the security guidelines applicable to them as per security instructions/architectures prescribed in “Security Manual for Licence Defence Industries” available at based on their categorization. Some of the important guidelines of the Security Manual includes external security audit of the ILDCs by Intelligence Agencies once in two years and cyber security audit by CERT-IN empanelled auditors once every year.

• The licensable defence items as mentioned in the license, produced by the private manufacturers will be primarily sold to the Ministry of Defence. These items may also be sold to other Government entities under the control of the Ministry of Home Affairs, State Governments, Public Sector Undertakings(PSUs) and other valid Defence Licensed Companies without prior approval of Department of Defence Production (DDP). However, for sale of the items to any other entity, the licensee shall take prior permission from DDP, Ministry of Defence.

This information was given by Minister of State for Defence Rao Inderjit Singh.