India's Bold Move: Facilitating Foreign Investments in Defence Sector

India plans to ease foreign investment in its defence sector by raising the FDI cap from 49% to 74% without government approval. The move aims to attract foreign companies to take majority stakes, boosting local manufacturing after a conflict with Pakistan. Key regulatory conditions may also be removed.

In a decisive move to enhance foreign investment in its defence sector, India is set to raise the foreign direct investment (FDI) cap from 49% to 74% without requiring government approval. Sources indicate this strategy is part of a broader effort to expand domestic manufacturing capabilities, spurred by last year's conflict with Pakistan.

The proposed changes would eliminate several barriers, including a contentious requirement linking investments beyond 74% to access to 'modern technology.' This condition, criticized for its ambiguity, has deterred potential investors. The new regulations would empower foreign firms to hold majority stakes, aligning with India's ambitions to modernize its defence industry rapidly.

The reforms, which may be implemented within months, also propose dropping the mandate for export-oriented manufacturers to establish domestic maintenance bases, which could further simplify the investment process. Despite India's robust ties with various defence partners such as the U.S., France, and Israel, foreign equity inflows have remained modest. These adjustments could redefine India's position, transitioning from a major arms importer to a competitive arms exporter.

(With inputs from agencies.)