The government is considering easing Foreign Direct Investment (FDI) norms in the defence sector to facilitate more projects where global giants can participate, sources said.
The Department for Promotion of Industry (DPIIT) is leading stakeholder consultations on the issue to attract more investments in the sector where up to 100% FDI is allowed in select projects.
The Defence Industry sector opened up in May 2001 for private sector participation. The FDI limit in the defence sector was enhanced in 2020 up to 74% through the Automatic Route for companies seeking a new defence industrial license, and up to 100% through the approval route wherever it is likely to result in access to modern technology.
While 100% FDI is permitted through the government route in sectors likely to result in access to modern technology, the term “modern technology” remains undefined.
Despite these hurdles, select global firms have secured 100% equity approvals. Sweden’s Saab Group established Saab FFV India to produce Carl-Gustaf M4 weapon systems—the first fully foreign-owned defense facility in the country. France’s Safran secured approvals for a wholly-owned subsidiary handling military helicopter engine components and Maintenance, Repair, and Overhaul (MRO) support. Similarly, MBDA Missile Systems operates wholly-owned entities for high-tech sub-assemblies alongside existing domestic JVs.
As of March 2026, Rs 6,671 crore worth of FDI inflow has been reported by companies operating in the defence sector. While the government continues pushing co-development and co-production models, broader participation faces systemic policy friction.
A core issue cited by foreign investors is a structural mismatch between FDI equity caps and the Defence Acquisition Procedure (DAP). High-priority procurement categories mandate a minimum of 51% domestic ownership. Consequently, foreign original equipment manufacturers utilizing the 74% automatic FDI route find themselves disqualified from major domestic procurement tenders.
Foreign OEMs also point to single-buyer risk—where the Indian Armed Forces serve as the sole domestic customer—alongside long procurement cycles, strict offset obligations, and reluctance to share proprietary core intellectual property without majority operational control. The ongoing DPIIT consultations are expected to examine these ownership thresholds and procedural guidelines to align procurement policies with investment incentives