Budget Push: Centre weighs raising defence FDI cap to 74 pc

New Delhi: The government is mulling a far more liberalised foreign direct investment (FDI) regime for its defence sector in the forthcoming budget. Top officials said that among a bunch of Budget proposals is a move to raise the FDI limit to 74 per cent under the automatic route for existing licensed defence manufacturers.

“The move aims at accelerating technology inflows, joint ventures and domestic production in a strategically sensitive industry. We need to woo both capital and new technology into high-tech defence areas and this is one step which is being actively considered,” the officials said.

The move would lift the current ceiling of 49 per cent for such firms and allow foreign investors to acquire majority stakes without requiring prior approval from either the Reserve Bank of India or the government.

Currently, only new firms coming into high-tech defence manufacturing can apply for a 74 per cent FDI under the automatic route.

Officials familiar with the discussions said the change is “also intended to create parity between new and existing licence-holders, while simplifying conditions that have long been seen as ambiguous or cumbersome.”

The government is also considering dropping requirements such as the need to demonstrate access to “modern technology” for foreign investments beyond 74 per cent, which have often led to “subjective interpretations” affecting investments in key components needed for the defence industry.

Besides giants like Lockheed Martin, GE, Thales, Dassault, Rostec conglomerate, the move is expected to help smaller firms making components and accessories for defence industry buy into Indian component manufacturing.