India Plans Easier FDI Rules For Defence Sector to Enable Majority Foreign Ownership

India is preparing significant changes to its foreign direct investment (FDI) rules in the defence sector, according to news reports. The proposal seeks to simplify investment norms for foreign companies operating in defence manufacturing.

The planned reforms aim to strengthen domestic production and align with broader efforts to modernise India’s defence ecosystem. The government expects these changes to improve capital inflows and support the growth of indigenous defence capabilities.

FDI Cap for Licensed Defence Firms to Increase

The proposed policy will raise the FDI limit for defence companies with existing licences from 49% to 74% under the automatic route. This adjustment aligns the rules with those applicable to firms seeking new licences, which already allow 74% foreign ownership without government approval.

The measure aims to create uniformity across the sector and remove inconsistencies that previously restricted foreign participation. News reports indicated that this move is expected to be implemented within the next few months.

Removal Of Technology Access Condition

Currently, foreign ownership beyond 74% is permitted only if it “results in access to modern technology,” a clause many experts describe as unclear and restrictive. The government is considering removing this condition to improve policy transparency and investor confidence.

Eliminating the clause would simplify compliance requirements for foreign defence firms seeking higher ownership stakes. Officials noted that the revised framework would encourage long-term investment by reducing ambiguity around eligibility.

Additional Easing of Operational Requirements

Another condition under review is the requirement that fully export‑oriented defence manufacturers establish domestic maintenance and support facilities. The removal of this clause is expected to reduce operational barriers for foreign players focused primarily on export‑led production.

The government believes that these relaxed provisions will attract more global defence companies to form majority‑owned ventures in India. This initiative complements existing partnerships with firms such as Airbus, Lockheed Martin and Rafael Advanced Defence Systems.

Foreign Participation Remains Low Despite Partnerships

Despite longstanding defence cooperation with multiple partner nations, India has seen limited FDI inflows into the defence sector. Data shows that the sector received only USD 26.5 million out of USD 765 billion in total foreign inflows during the 25‑year period up to September 2025.

Policymakers believe that restrictive ownership thresholds have contributed to lower investment volumes. The planned reforms aim to reverse this trend by opening the sector to deeper foreign involvement.

Defence Spending and Domestic Production Goals

India has increased its focus on strengthening defence funding following recent regional security developments. The Ministry of Defence is seeking a 20% increase in the FY26/27 budget over the USD 75.36 billion allocated for the current year.

The government previously stated its ambition to nearly double domestic defence production to USD 33.25 billion and raise defence exports to USD 5.5 billion by 2029. These targets highlight the strategic importance of encouraging foreign partnerships and technology integration.

Read More: Indian Defence Industry Outlook 2026 Amid Global Tensions and Policy Reforms.

Conclusion

India’s planned easing of FDI rules for defence manufacturing marks a significant step toward attracting greater foreign investment and strengthening domestic capabilities. By allowing majority foreign ownership and removing ambiguous conditions, the government aims to encourage stronger participation from global defence companies.

The reforms complement national goals of expanding defence production and increasing exports. Their implementation in the coming months could reshape India’s defence manufacturing landscape.

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