India to Allow 74% Foreign Investments in Defence Technologies

PM Modi’s administration aims to increase the FDI cap from 49 percent to 74 percent.

3 min read
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India plans to allow higher foreign investments in niche defence technologies under the automatic route as the world’s largest importer of arms and defence equipment looks to boost local manufacturing.

Prime Minister Narendra Modi’s administration aims to increase the foreign direct investment cap from the current 49 percent to 74 percent in such technologies, according to draft Defence Production Policy 2018 released by the Ministry of Defence. As of now, anything over the existing limit is allowed on a case-to-case basis.

India aims to be among the top five countries in aerospace and defence, the document said, seeking comments. The policy aims to reduce dependence on imports, and achieve self-reliance in development and manufacturing of indigenous weapon systems. The government plans to increase the domestic production nearly threefold to Rs 1.7 lakh crore by 2025.


The key focus, according to the draft, will be on:

  • Fighter aircraft
  • Medium lift and utility helicopters
  • Warships
  • Land combat vehicles
  • Autonomous weapon systems
  • Missile systems
  • Gun systems
  • Small arms
  • Ammunition and explosives
  • Surveillance systems
  • Electronic warfare systems
  • Communication systems
  • Night fighting enablers

Focus on Cyberspace and AI

The government is looking to tap the Indian information technology sector to gain an edge in cyberspace and artificial intelligence. It has emerged as the fourth domain of warfare and India, with its leadership in IT can use this technology tilt to its advantage, the draft said.

Licensing Regime

The government will list platform and weapon systems being considered for procurement in the next 10 years to help private firms understand the opportunities. It will also simplify ‘Make-II’ process for private companies to enter defence production. To that end, it will liberalise the regime by allowing licenses in 30 days, pruning the no-go areas to a small ‘negative list’ for licensing.

The government will also do away with ex-ante, or forecast-based, capacity assessment except in critical projects. It will introduce earnest money deposits and performance guarantees as safeguards for others.

Offset Regime

The government proposes to set up an offsets ombudsman for resolving all such claims. Offsets – investments through a local partner to set up ecosystem of suppliers – would be investment linked.

Taxation: The policy aims to rationalise taxes on import of capital goods for services and inputs for defence and aims to prevent inversion of taxes.


Defence Industry Corridors

The policy aims to build defence industry corridors in partnership with states and on existing production facilities to create an ecosystem of supply chains of small businesses and original equipment makers. The government will spend Rs 3,000 crore each to create a special entity for developing such corridors.

Access to Testing Facilities

India will provide access to its testing facilities to the private sector. It will also set up common testing facilities, contributing up to Rs 100 crore per testing facility.


India is looking at Rs 35,000 crore of exports by 2025. It will promote made-in-India products through government-to-government agreements and line of credit. The Indian offset partners would be encouraged to take up export of parts and accessories.


The government proposes to set up National Aeronautical Commission for better coordination and sharing of information and technologies. It plans to set up an aeronautical university along with Hindustan Aeronautics Ltd. by equally sharing the costs.

It plans to transition automotive component manufacturers to aeronautical parts design and manufacturing.

The government also plans to develop a civilian aircraft for 80-100 seats over the next seven years by leveraging the design and manufacturing capabilities developed in the country.

Boost for HAL

India wants to augment capacities to produce various platforms, including light combat aircraft, advance light helicopter, light combat helicopter, light utility helicopter and Dornier 228 for armed forces and exports.

(This piece was originally published on BloombergQuint and has been republished with permission. Read the original story here.)

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Topics:  Narendra Modi   India   Ministry of Defence 

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