India Plans Defence FDI Norms Overhaul to Attract Global Manufacturers

India is preparing a major liberalisation of foreign direct investment (FDI) norms in the defence sector to draw global manufacturers and boost domestic production, according to a Reuters report citing government sources. The proposed changes are part of a broader push to strengthen indigenous defence manufacturing and reduce dependence on imports.

FDI cap under automatic route likely to rise

Under the proposed reforms, the FDI cap for defence companies with existing licences under the automatic route is expected to be raised to 74 per cent from the current 49 per cent. The automatic route allows foreign investment without prior government approval. At present, 74 per cent foreign ownership is permitted automatically only for companies seeking new defence licences.

‘Modern technology’ clause under reconsideration

The government is also reviewing the provision that permits foreign investment beyond 74 per cent only if it results in access to “modern technology”. Industry experts have long criticised this clause as ambiguous and difficult to interpret, often deterring large-scale foreign participation.

Push for majority foreign ownership in joint ventures

The planned changes aim to allow defence firms from partner countries to hold majority stakes in Indian ventures. Officials indicated that the reforms could be implemented within the next few months. The move is expected to make India a more attractive destination for global defence manufacturers seeking long-term investments.

Imporatnt Facts for Exams

• Current automatic FDI limit in existing defence licence holders is 49 per cent.
• Up to 74 per cent FDI is allowed automatically for new defence licences.
• FDI beyond 74 per cent currently requires proof of access to modern technology.
• India targets $5.5 billion in defence exports by 2029.

Export norms and foreign inflows under focus

Another proposal under review is the removal of the requirement for fully export-oriented defence manufacturers to establish domestic maintenance and support facilities. According to former defence ministry official Amit Cowshish, allowing such services to be outsourced could significantly ease foreign investment.

Despite partnerships involving firms such as Airbus, Lockheed Martin and Rafael Advanced Defense Systems, foreign equity inflows into India’s defence sector remain limited. Government data shows inflows of just $26.5 million over 25 years until September 2025, against total foreign inflows of $765 billion.

The proposed FDI reforms align with India’s push to raise defence spending, expand domestic production, and position itself as a global defence manufacturing hub.