India to Ease Foreign Investment Rules in Defence Sector
India plans to significantly relax restrictions on foreign investment in defence companies, two government officials with direct knowledge of the matter have said. The reform aims to attract greater overseas participation in domestic defence manufacturing, aligning with the country’s push to strengthen its industrial base following last year’s conflict with Pakistan.
Raising Investment Limits and Simplifying Rules
Under the proposal, the cap on foreign direct investment (FDI) in defence firms with existing licences via the automatic route—where government approval is not required—is expected to increase from 49% to 74%, the officials said. At present, foreign investors may hold up to 74% only when the companies are applying for new licences.
The government is also considering removing a clause that permits investment above 74% only when it “results in access to modern technology.” Analysts have long criticised the requirement as unclear and restrictive. By eliminating this condition, India aims to make it easier for defence partners to take majority stakes in local ventures, the sources explained.
The changes, which have not been previously disclosed, could take effect within the next few months, they added. Both the trade and defence ministries declined to comment when contacted by Reuters.
Encouraging Majority Stakes and Export Growth
Another key reform under discussion would remove the obligation for fully export-oriented defence manufacturers to establish domestic maintenance and support facilities. According to former defence ministry official Amit Cowshish, the change would simplify operations for such firms, allowing them to outsource maintenance work and attract foreign investors more easily.
Experts believe these steps could help India become a more attractive destination for global defence firms such as Airbus, Lockheed Martin, and Israel’s Rafael Advanced Defense Systems, all of which already have partnerships in the country.
Boosting Defence Manufacturing and Reducing Imports
Despite India’s longstanding defence collaborations with countries including Russia, foreign equity inflows into the sector remain limited. Between 2000 and September 2025, the defence industry accounted for just $26.5 million of India’s total $765 billion in foreign investment, according to official data.
The government has stepped up efforts to expand defence manufacturing since the brief but intense conflict with Pakistan in May 2025, where drones and fighter jets played a pivotal role. The defence ministry is now seeking a 20% budget increase for fiscal 2026–27, up from the current $75.36 billion allocation.
India’s strategic plan also targets a near doubling of domestic defence production to $33.25 billion and an increase in exports to $5.5 billion by 2029. In 2024–25, defence exports rose 12% year-on-year to a record $2.6 billion, signalling progress in the country’s effort to transition from being one of the world’s largest arms importers to a significant defence exporter.
with inputs from Reuters