India is reportedly preparing to ease foreign direct investment (FDI) norms in its defence sector, aiming to attract global manufacturers and boost domestic production. The proposed changes include raising the FDI cap to 74% under the automatic route, a significant increase from the current 49%. This move intends to encourage foreign companies to take majority stakes in Indian ventures.
Sources suggest the government's decision is partly influenced by the lessons learned from the May 2025 conflict, where advanced aerial technologies played a crucial role. The enhanced FDI is expected to strengthen local manufacturing capabilities and modernize the defence industry.
One of the key proposed changes involves removing the requirement for government approval for investments up to 74%. Previously, investments exceeding this threshold were contingent on access to "modern technology," a clause criticized for its ambiguity. By eliminating this condition, New Delhi aims to encourage global defence majors to pursue majority ownership in Indian ventures, facilitating deeper partnerships and technology transfers.
The reforms also propose dropping the mandate for fully export-oriented defence manufacturers to establish local maintenance and support facilities. Experts suggest this will streamline operations, allowing these units to outsource.
The defence ministry is reportedly pushing for a 20% budget increase in the upcoming fiscal year, seeking ₹7.5 trillion for 2026/27. The government has set ambitious targets to nearly double domestic production to $33.25 billion and grow defence exports to $5.5 billion by 2029. In the last fiscal year, defence exports already hit a record $2.6 billion.
Despite India's robust ties with various defence partners such as the U.S., France, and Israel, foreign equity inflows have remained modest. According to reports, 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. It is believed that these adjustments could redefine India's position, transitioning from a major arms importer to a competitive arms exporter.
The proposed policy revision aligns with India's broader strategy to strengthen domestic defence manufacturing capabilities and reduce reliance on imports. The government aims to shrink the country's trade deficit while equipping India with up-to-date manufacturing abilities.
