- India plans to raise foreign direct investment cap in defence to 74% from 49%
- The government may remove the vague "modern technology" condition for FDI above 74%
- Export-oriented defence firms won't need domestic maintenance bases under new rules
India is set to make it easier for foreign firms to invest in domestic defence companies, according to two government sources with direct knowledge of the matter. The proposed changes aim to strengthen local manufacturing, particularly following the May 2025 conflict with Pakistan, in which drones and fighter jets were prominently deployed.
Under the proposed changes, the cap on foreign direct investment (FDI) in defence firms with existing licences under the so-called automatic route, where government approval is not required, would rise to 74% from the current 49%, the sources told Reuters. The government is also considering removing a condition that allows foreign investment above 74% only if it “results in access to modern technology,” a phrase experts have reportedly criticised as vague and ambiguous.
The sources said the proposed easing of these rules is intended to encourage companies from defence partner nations to take majority stakes in Indian ventures. The reforms could be implemented within the next few months.
Another condition set to be removed is the requirement for fully export-oriented defence manufacturers to establish domestic maintenance and support facilities.
“This condition compelled companies to first set up a base for maintenance activities, which can now be outsourced by the export-oriented units, making it easier for them to attract foreign investment,” Amit Cowshish, a former defence ministry official, told Reuters.
Foreign defence firms with operations in India through joint ventures or strategic partnerships include France's Airbus, Lockheed Martin of the US and Israel's Rafael Advanced Defense Systems. India also maintains extensive defence ties with Russia.
However, foreign equity inflows into India's defence sector have been limited, amounting to just $26.5 million of the total foreign inflows of $765 billion over the 25 years till September 2025, according to government data.
The defence ministry is requesting a 20% increase in spending in the fiscal 2026/27 budget over the $75.36 billion allocated for the current year. In 2025, the government also aimed to nearly double domestic production of defence equipment to $33.25 billion and increase defence exports to $5.5 billion by 2029. Defence exports grew 12% year-on-year in 2024/25 to $2.6 billion, a record high.
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