India is expected to introduce changes to its foreign direct investment (FDI) regulations for domestic defence companies, reported Reuters, citing two government sources familiar with the discussions.
Currently, FDI in Indian defence firms with existing licenses via the automatic route— where approval from the government or the Reserve Bank of India is not required— is 49%. The proposed changes would raise this to 74%, enabling foreign investors to obtain majority stakes in licence-holding Indian defence businesses without going through approval processes, the sources said.
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Presently, foreign firms can own up to 74% of an Indian defence firm via the automatic route for firms seeking new licenses.
Officials are also considering removing a clause requiring foreign investment above 74% to result in “access to modern technology”, which observers have described as unclear.
Another provision under review would affect export-oriented manufacturers by scrapping the obligation to set up domestic maintenance and support facilities.
These changes aim to attract greater participation from companies based in countries that partner with India on defence matters.
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By GlobalDataThe timeline for these reforms suggests possible implementation within the next two months.
Neither India’s trade ministry nor the defence ministry responded to requests for comment regarding the forthcoming policy adjustments.
India former defence ministry official Amit Cowshish said: “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.”
International companies such as Airbus of France, Lockheed Martin from the US, and Israel’s Rafael Advanced Defense Systems currently operate in India through joint ventures or strategic collaborations. Russia remains another significant defence partner.
Despite these arrangements, government statistics show that FDI in India’s defence sector reached only $26.5m out of a total of $765bn in foreign inflows over a 25-year period ending September 2025.
India has taken steps to increase funding and domestic manufacturing in its defence sector following last year’s conflict with Pakistan involving aerial combat and drone usage.
The Ministry of Defence has requested a 20% budget increase for fiscal year 2026–27 compared with the $75.36bn allocated this year.
In addition, authorities have set targets to nearly double local defence production to $33.25bn and lift exports to $5.5bn by 2029.
Defence exports rose by 12% in the financial year 2024–25 to reach $2.6bn as India continues efforts to reduce reliance on imported military equipment.
