A recent report by Reuters indicated that the Government may plan to revise caps for foreign investors in the defence sector. These reforms could come into effect in the next couple of months, Reuters reported, quoting sources.
According to Reuters, Government may revise its norms for foreign firms investing in the Indian defence sector. Under these revisions, the cap on foreign direct investment in defence firms, where government permission is not required, would rise to 74% from the current 49%, Reuters stated quotingsources. At present, foreign investors can own up to 74% under the automatic route only when companies are seeking new licences.
FDI in defence- Key revisions likely?
The Reuters report noted that the government is also discussing the removal of conditions that apply to foreign investment beyond 74%. Currently, investments above this level are permitted only if they “result in access to modern technology,” a wording that many experts have described as vague and ambiguous.
Defence stocks in focus
Following the report, shares of major Indian defence companies came under pressure. Bharat Electronics closed nearly 2% lower compared to its previous close. Hindustan Aeronautics ended nearly 1% lower than Thursday’s close, while shares of Paras Defence fell by nearly 2%. The Nifty India Defence Index also closed 0.5% lower compared to the previous session.
FDI in Defence may increase, says Reuters
According to the sources cited by Reuters, the move would encourage foreign investors to take majority stakes in Indian defence firms. The government is also considering removing export-oriented restrictions that mandate companies to set up domestic maintenance and support facilities. Reuters added that these requirements could be relaxed to make investments more attractive. FinancialExpress.com has not been able to independently verify this information.
“This condition compelled companies to first set up a base for maintenance activities, which can now be outsourced by export-oriented units, making it easier for them to attract foreign investment,” Reuters quoted Amit Cowshish, a former defence ministry official, as saying.
Currently, companies such as Airbus, Lockheed Martin and Rafael Advanced Defense Systems operate in India through joint ventures or partnerships. India also maintains extensive defence ties with Russia.
Following India’s conflict with Pakistan last year, the BJP-led NDA government has been looking to increase foreign funding in the defence sector, the report added. For the upcoming Union Budget 2026, the defence ministry has sought a 20% increase in spending.
As per government data, of the total foreign inflows of $765 billion into India, foreign equity inflows into the defence sector account for $26.5 million. This data covers a 25-year period up to September 2025.