Defense manufacturing will get a boost in the country.Image Credit source: File photo
To increase foreign investment in its defense sector, India can ease the rules and increase the limit of Foreign Direct Investment (FDI). Citing government sources, Reuters reported that India is planning to make it much easier for foreign companies to invest in defense sector companies. This step is part of efforts to promote domestic manufacturing in the country after the conflict with Pakistan last year. According to the report, in defense companies which already have licenses, the FDI limit can be increased from 49% to 74% under the automatic route without government approval.
At present, under the automatic route, foreign investors can take up to 74% stake only in those Indian defense companies which are applying for new licenses. The government is also discussing removing this condition, which states that more than 74% foreign investment will be approved only if it provides access to modern technology. Experts say that this condition is vague and not clear.
Foreign companies will be able to take majority stake
The purpose of relaxing these rules is to encourage companies from India’s defense partner countries to take majority stake in Indian enterprises. It has been said in the report that these reforms can be implemented in the next few months. However, India’s Commerce and Defense Ministry has not responded to this. Sources also said that the government is preparing to remove the condition under which defense companies that are completely dependent on exports were required to create maintenance and support facilities in the country. According to former Defense Ministry official Amit Kausish, due to this condition the companies had to first prepare the basis for maintenance. Now export-oriented companies will be able to outsource this work, which will make it easier for them to attract foreign investment.
Investment till now has been less
Foreign defense companies already working in India through joint venture or strategic partnership include France’s Airbus, America’s Lockheed Martin and Israel’s Rafael Advanced Defense Systems. India also has strong defense relations with Russia. Despite this, according to government data, a total of $ 765 billion of foreign investment came into India in the last 25 years till September 2025, but out of this, only $ 26.5 million was invested in the defense sector.
Emphasis on increasing funding in defense sector
After the conflict with Pakistan in May last year, India has emphasized on increasing funding in the defense sector, in which drones and fighter jets were important. The Defense Ministry has demanded 20% more expenditure in the budget for the financial year 2026-27 as compared to the current year’s $75.36 billion. The government had also said last year that it wants to almost double domestic production of defense equipment to $33.25 billion by 2029 and increase defense exports to $5.5 billion. In the financial year 2024-25, defense exports increased by 12% on an annual basis to reach a record level of $ 2.6 billion. India is now trying to change its old image of being among the world’s largest arms importers.