India is considering a major overhaul of its defence investment rules, with plans to relax foreign ownership limits to attract global defence firms and strengthen domestic manufacturing, according to a Reuters report citing government sources.
India is planning to significantly ease rules for foreign investment in defence companies, a move aimed at boosting domestic manufacturing, according to a Reuters report citing two government sources familiar with the matter.
FDI cap under automatic route set to rise
Under the proposed changes, the cap on foreign direct investment in defence firms with existing licences under the automatic route — which does not require government approval — is expected to be raised to 74 per cent from the current 49 per cent, the sources said to Reuters.
At present, foreign investors are permitted to own up to 74 percent under the automatic route only when companies are applying for new defence licences.
‘Modern technology’ clause under review
The government is also considering removing a condition that allows foreign investment beyond 74 per cent only if it “results in access to modern technology”. Experts have long criticised the clause as vague and ambiguous.
Move to allow majority foreign ownership
The planned reforms, which have not been reported earlier, are intended to encourage defence firms from partner countries to take majority stakes in Indian ventures, the sources said. The changes could be implemented within the next couple of months.
India’s trade and defence ministries did not respond to requests for comment.
Export-oriented manufacturing norms may be eased
The Reuters report also says that another requirement under review is the mandate for fully export-oriented defence manufacturers to establish domestic maintenance and support facilities. The government is considering dropping this condition, the sources said.
“This condition forced companies to first set up maintenance bases, which can now be outsourced by export-oriented units, making it easier for them to attract foreign investment,” said Amit Cowshish, a former defence ministry official.
Foreign inflows remain limited
Several global defence firms already operate in India through joint ventures or strategic partnerships, including France’s Airbus, US-based Lockheed Martin and Israel’s Rafael Advanced Defense Systems. India also maintains extensive defence ties with Russia.
Despite this, foreign equity inflows into India’s defence sector have remained muted, accounting for just $26.5 million out of total foreign inflows of $765 billion over the 25 years through September 2025, according to government data.
Push for defence spending and exports
The defence ministry has sought a 20 percent increase in its budget for the 2026–27 financial year over the $75.36 billion allocated for the current year. The government has also set targets to nearly double domestic defence production to $33.25 billion and raise defence exports to $5.5 billion by 2029.
Defence exports rose 12 percent year-on-year in 2024–25 to a record $2.6 billion, as India looks to reduce its long-standing reliance on arms imports.
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