Government Considers Easing FDI Norms in Defence Sector to Attract Overseas Investment

The Indian government is considering further liberalisation of foreign direct investment (FDI) norms in the defence sector to attract more overseas investors, according to an official. The Department for Promotion of Industry and Internal Trade is currently holding stakeholder consultations regarding the proposed changes.

"Some easing in norms is under consideration," an official stated on Monday.

Under the existing policy, FDI up to 74 percent is permitted through the automatic route. Investment beyond that threshold is allowed through the government approval route in cases where it is expected to result in access to modern technology. Additionally, any foreign investment in the sector remains subject to security clearance by the Ministry of Home Affairs and guidelines issued by the Ministry of Defence.

Official data indicates that India has attracted $32.29 million in FDI within defence industries between April 2000 and March 2026.

This deliberation comes alongside several measures taken by the government to boost domestic manufacturing in the sector. India's defence budget has seen an increase from ₹2.53 lakh crore in 2013-14 to ₹7.85 lakh crore in 2026-27. Concurrently, sector exports grew significantly from ₹686 crore in 2013-14 to ₹38,424 crore in 2025-26.

Breakdown of the 2025-26 export figures shows that the private sector contributed ₹17,353 crore, accounting for 45.16 per cent of defence exports. Meanwhile, defence public sector undertakings contributed ₹21,071 crore, representing 54.84 per cent.

Looking ahead, the government has set official targets to achieve ₹3 lakh crore in annual defence production and ₹50,000 crore in exports by the year 2029.

"The potential easing of FDI norms in India's defence sector is a timely step that could unlock new avenues for private sector participation and technology transfer. With domestic defence production and exports scaling up significantly over the past decade, opening up further foreign investment can help domestic enterprises build advanced capabilities. For private manufacturers and emerging players looking at the defence supply chain, this regulatory evolution signals a strengthening ecosystem with clear long-term growth targets set for 2029." — Dr. Shishir Gupta, Founder & CEO, StartupLanes