India Plans Defence FDI Overhaul to attract global manufacturers and boost domestic production. The government is preparing major changes in foreign direct investment (FDI) rules for the defence sector as part of a broader strategy to strengthen local manufacturing and reduce dependence on imports, according to sources cited by Reuters.

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Raising the FDI Cap Under Automatic Route

One of the key changes under consideration is increasing the FDI limit for existing defence companies under the automatic route. Currently, companies with existing licences can receive up to 49 per cent foreign investment automatically. The government is now expected to raise this limit to 74 per cent.

The automatic route allows foreign investors to invest without prior government approval, making it simpler and faster for companies to enter the Indian market. Currently, only new defence licence applicants can benefit from automatic foreign ownership of up to 74 per cent. With the proposed reform, even existing companies could enjoy this higher limit, making India a more attractive destination for global defence firms.

Revisiting the “Modern Technology” Clause

Another important aspect of the proposed changes is a review of the clause that allows foreign investment beyond 74 per cent only if it provides access to “modern technology.” Industry experts have long criticized this rule as vague and difficult to interpret, which often discourages large-scale foreign participation.

By reconsidering this requirement, the government hopes to make it easier for foreign companies to invest in India without the hurdles of proving access to advanced technology. This step could encourage major global defence players to take larger stakes in Indian ventures.

Encouraging Majority Foreign Ownership in Joint Ventures

The new rules are expected to allow foreign defence firms to hold majority ownership in Indian joint ventures. Officials have indicated that these reforms could be implemented within the next few months. This would be a major shift from the current system, which restricts majority ownership and sometimes deters foreign companies from entering the Indian market.

Allowing majority foreign stakes will likely encourage long-term investment from global manufacturers. Companies from countries such as the US, France, and Israel may find India a more appealing destination for partnerships and large-scale production.

Changes to Export Norms and Domestic Facilities

The government is also reviewing rules related to defence exports. Currently, fully export-oriented defence manufacturers are required to set up domestic maintenance and support facilities. Under the proposed reforms, this requirement may be removed, allowing such services to be outsourced.

A former defence ministry official, Amit Cowshish, explained that easing this restriction could significantly improve the ease of doing business for foreign investors. Companies can focus on manufacturing while outsourcing maintenance, making India a more competitive market for defence production.

The Need for Reforms: India Plans Defence FDI Overhaul

Despite collaborations with global defence giants such as Airbus, Lockheed Martin, and Rafael Advanced Defense Systems, foreign investment in India’s defence sector has remained limited. Government data shows that only $26.5 million in foreign equity has flowed into India’s defence sector over the last 25 years until September 2025. By comparison, total foreign inflows into the country during the same period reached $765 billion.

The limited inflow is partly due to restrictive FDI norms and ambiguous rules, which the government now seeks to address. The proposed reforms are expected to create a more investor-friendly environment, helping India attract more global players and improve domestic manufacturing.

India Plans Defence FDI Overhaul and Defence Manufacturing Goals

India is aiming high for its defence sector. The government has set a target of $5.5 billion in defence exports by 2029. To achieve this, the country needs stronger domestic production and increased participation from foreign investors.

The planned FDI overhaul aligns with these goals, as well as India’s larger push to expand defence spending and become a global manufacturing hub. By making it easier for foreign firms to invest and hold majority stakes, India can not only boost local production but also bring advanced technology and expertise into the country.

Looking Ahead: India Plans Defence FDI Overhaul

The proposed FDI reforms are expected to be implemented within the next few months, creating new opportunities for domestic and foreign defence companies. With these changes, India could become a more attractive destination for global defence manufacturers, increase its exports, and strengthen its indigenous defence capabilities.

These measures also signal the government’s commitment to modernizing India’s defence sector while balancing the need for foreign investment and technology access. If successfully implemented, the reforms could mark a turning point for India’s defence industry, making it more competitive on the global stage.