“Decoding the Proposed Defence FDI Relaxation”, Indian Narrative, January 20, 2026
“In a move poised to reshape its defence landscape, India is contemplating significant relaxations in foreign direct investment (FDI) norms for the sector. Sources indicate plans to raise the automatic route cap from 49% to 74% for existing licensed defence firms, eliminating vague conditions like the requirement for “modern technology.” This policy shift aims to lure global manufacturers, fostering joint ventures and technology transfers to bolster domestic production. Amid rising geopolitical tensions and a push for self-reliance under the ‘Make in India’ initiative, these changes could prove transformative, enhancing economic growth, technological advancement, and national security. This article explores why this could be a pivotal game-changer for India.
India’s defence sector has historically been cautious about foreign involvement due to security concerns. Prior to 2001, it was largely closed to private and foreign players, relying on state-owned enterprises. Incremental liberalizations followed: in 2016, FDI up to 49% was allowed under the automatic route, with higher stakes requiring approval. By 2020, the cap rose to 74% automatic for new licenses, and 100% with government nod in cases involving advanced tech. However, for existing firms, the 49% limit persisted, deterring major investments.
Despite these steps, FDI inflows remain dismal. Between 2000 and September 2025, only $26.5 million trickled in, a fraction of the $765 billion total FDI into India. This underperformance stems from restrictive clauses, such as mandatory government approval for majority stakes and ambiguous “state-of-the-art” technology prerequisites, which complicate deals and raise compliance burdens. The proposed easing—extending 74% automatic approval to all licensed entities and scrapping such conditions—addresses these bottlenecks, signaling India’s intent to integrate into global supply chains……”
Read full article at indianarrative.com
