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The government is considering liberalising FDI norms in the defence sector

ICICIdirect Research 01 Sep 2026 DISCLAIMER

News: The government is considering liberalising FDI norms in the defence sector to attract greater overseas investment, with the Department for Promotion of Industry and Internal Trade (DPIIT) currently holding stakeholder consultations. At present, foreign investment of up to 74% is permitted through the automatic route, while investments above 74% require government approval, particularly where access to modern technology is involved. The move comes as India seeks to strengthen domestic defence manufacturing and attract global companies into the local supply chain. India’s defence FDI stood at only US$32.3 million between April 2000 and March 2026, despite defence production and exports rising significantly. The government is targeting ₹3 lakh crore of annual defence production and ₹50,000 crore of exports by 2029.

View: The potential easing of FDI norms is positive for the Indian defence sector as greater foreign participation could bring capital, advanced technology, manufacturing expertise and access to global supply chains, while encouraging international defence OEMs to establish a larger presence in India. This could benefit HAL, BEL, BDL and MIDHANI, along with private players such as  Solar Industries, Astra Microwave, Data Patterns, Dynamatic Technologies, Azad Engineering, Tata Advanced Systems and Larsen & Toubro, through greater opportunities for joint ventures, technology partnerships and local manufacturing. Higher foreign participation could also help Indian companies scale production faster and improve their ability to serve both domestic and export markets. With private companies already contributing 45% of India's defence exports in FY26, further liberalisation could accelerate the shift towards a larger, more technology-intensive and globally integrated Indian defence manufacturing ecosystem

Impact: Positive

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