India’s defence manufacturing sector may soon witness a significant policy shift as the government looks to further liberalise foreign direct investment (FDI) norms.
According to sources, the Department for Promotion of Industry and Internal Trade (DPIIT) is exploring changes that could allow higher automatic-route FDI for defence companies that already hold licences.
The proposed reform is aimed at ensuring parity between new and existing defence licence holders while strengthening India’s position as a global defence manufacturing hub under the ‘Make in India’ and ‘Atmanirbhar Bharat’ initiatives.
The Department for Promotion of Industry and Internal Trade (DPIIT) could soon liberalise foreign direct investment (FDI) norms in the defence sector for companies with existing investments, sources told .
According to sources, the government is considering increasing the FDI limit for defence companies with existing licences from 49% to 74% under the automatic route.
If implemented, this change would mark a major shift for companies that had invested under earlier, more restrictive rules, allowing them to attract larger foreign capital inflows without prior government approval.
The government had earlier liberalised FDI rules for defence companies with new licences, raising the limit from 49% to 74% under the automatic route. The proposed move is aimed at bringing parity in the FDI regime for both new and existing investments in the defence sector.
Industry experts have long argued that differing FDI thresholds created an uneven playing field, particularly disadvantaging firms that entered the sector before the 2020 reforms. Equalising the rules is expected to improve investor confidence and reduce regulatory friction.
Foreign direct investment (FDI) in the defence sector was liberalised in September 2020 to attract foreign investment, allowing up to 74% FDI through the automatic route and above 74% through the government route.
This reform was designed to encourage global defence manufacturers to partner with Indian firms, bring advanced technology into the country, and reduce India’s dependence on defence imports.
Raising the automatic-route FDI limit for existing licence holders could help Indian defence firms:
Access advanced defence technologies
Strengthen joint ventures with global OEMs
Improve production capacity and scale
Accelerate indigenisation of defence platforms
The move aligns with India’s long-term goals of becoming a net defence exporter and building a robust domestic defence-industrial base. India has already crossed record levels in defence exports in recent years, driven by policy reforms and private sector participation.
Allowing up to 74% FDI under the automatic route reduces approval timelines and regulatory uncertainty for foreign investors. This is particularly important for capital-intensive defence projects that require long-term commitments and technology transfer.
The proposed parity in FDI norms could encourage global defence majors to deepen their engagement with Indian partners, especially in areas such as aerospace, electronics, unmanned systems, and advanced materials.
India’s defence sector has attracted increasing global interest due to:
Large domestic demand
Government-backed procurement reforms
Rising defence exports
Focus on innovation and private sector participation
Policy clarity on FDI norms is seen as a critical enabler for sustaining this momentum.
The Department for Promotion of Industry and Internal Trade (DPIIT) is a pivotal nodal agency under the Ministry of Commerce and Industry, Government of India. It is primarily responsible for formulating and implementing policies that drive industrial growth, facilitate internal trade, and attract investment into the country.
As of early 2026, the department has significantly evolved, recently marking a decade of its flagship "Startup India" initiative.
DPIIT operates as a central strategist for India’s economic development. Its key mandates include:
The department has launched several high-impact programs that have reshaped the Indian business landscape:
On January 16, 2026, India celebrated the 10th Anniversary of Startup India.
DPIIT manages the Production Linked Incentive (PLI) schemes for 14 key sectors (including White Goods like ACs and LED lights). By mid-2025, these schemes realized an actual investment of over ₹1.88 lakh crore, significantly boosting domestic value addition.
A "one-stop shop" for investors, the NSWS has now granted over 8,29,000 approvals. It allows businesses to apply for various clearances (central and state) through a single digital portal, eliminating the need to visit multiple government offices.
The DPIIT’s consideration of easing FDI norms for existing defence licence holders marks another step in India’s ongoing defence sector reforms. By potentially raising the automatic-route FDI cap from 49% to 74% for older licence holders, the government aims to create a level playing field, attract fresh foreign capital, and accelerate technology-led growth in defence manufacturing. If approved, the move could further strengthen India’s ambition to emerge as a global defence production and export hub.