Foreign investors can hold up to 74% of an Indian defence company through the automatic route when the company seeks a new industrial licence. Ownership above 74%, up to the sector’s 100% cap, requires government approval and is considered where the investment is likely to bring modern technology or for other reasons recorded by the government. The rules differ for certain existing or unlicensed companies, so 74% is not a universal threshold for every transaction.
What is the FDI limit in India’s defence industry?
The sector’s stated foreign investment cap is 100%, but the route depends on the company’s licensing status and the proposed ownership change. For a company seeking a new industrial licence, up to 74% FDI is permitted under the automatic route. Investment above 74% requires the government route; it may be considered where it is likely to result in access to modern technology or for other reasons the government records. A 100% cap therefore does not mean that 100% foreign ownership is automatic.
The policy covers defence industry activities subject to an industrial licence under the Industries (Development and Regulation) Act, 1951, and manufacture of small arms and ammunition under the Arms Act, 1959. Whether a proposed product or activity needs a licence depends on the applicable rules and its specifics.
Automatic route and government route compared
| Route | Ownership level | When it applies | What it means |
|---|---|---|---|
| Automatic | Up to 74% FDI | Company seeking a new industrial licence | No prior government approval under the FDI route is required for investment within this threshold, but licensing, security and other applicable requirements still apply. |
| Government | Above 74%, up to the 100% sector cap | Company seeking a new industrial licence | Government approval is required; the policy identifies likely access to modern technology or other reasons recorded by the government as grounds for considering the proposal. |
The automatic route is not a waiver from industrial licensing or security review. It describes the FDI approval route, not permission to manufacture any defence product without the necessary licence.
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How the rules differ for existing or unlicensed companies
The policy has separate provisions for companies that are not seeking a new industrial licence or that already hold government approval for FDI in defence. In those cases, a change in equity or shareholding pattern, or transfer of an existing stake to a new foreign investor, involving FDI up to 49% requires a declaration to the Ministry of Defence within 30 days. A proposal to raise FDI above 49% requires government approval.
These provisions make it important to identify the company’s status before applying the headline 74% threshold. The proposed transaction, current foreign ownership, existing approvals and licensing position all matter.
Licensing, security and operating conditions
Industrial licence
A defence industrial licence is required for specified defence equipment, items and arms. The Department of Defence Production’s Defence Investor Portal provides investor-facing licensing information and links to government resources. Confirm whether the particular activity and product require a licence before structuring an investment.
Application review and security clearance
Industrial licence applications are considered by DPIIT in consultation with the Ministry of Defence and the Ministry of External Affairs. The FDI policy also makes investment subject to security clearance by the Ministry of Home Affairs and Ministry of Defence guidelines. The government may review an investment that affects, or may affect, national security.
Design, maintenance and lifecycle support
The policy expects the investee company to be self-sufficient in product design and development. It also calls for maintenance and lifecycle support facilities alongside the manufacturing facility. These operational expectations are relevant to the proposed business structure, not just the ownership percentage.
What the sector’s FDI figure tells you
The Government of India reported ₹6,670.59 crore in defence-sector FDI as of March 2026. This is a sector figure at that cutoff date, not an amount attributed solely to financial year 2025–26. The government also describes co-development and co-production with foreign original equipment manufacturers as part of its approach to advanced defence manufacturing; that policy direction is not a guarantee that an individual investor or project will be approved.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How to assess a proposed investment
- Establish the activity and licence status. Check whether the proposed product or manufacturing activity falls within the industrial-licensing requirement and whether the company is seeking a new licence.
- Classify the company. Determine whether it is a new licence applicant, an existing government-approved FDI holder, or a company not seeking an industrial licence. The applicable ownership and filing provisions differ.
- Map the ownership change. Identify the post-transaction FDI percentage, any change in shareholding, and whether an existing stake is being transferred to a new foreign investor.
- Identify the route and filings. Apply the relevant automatic-route threshold, government approval requirement or declaration provision to the company’s circumstances.
- Account for security and operating requirements. Consider required security clearances, design and development capability, and maintenance and lifecycle support in India.
- Verify current rules before committing. FDI policy pronouncements are notified through FEMA rules, and licensing instructions and administrative processes may change. Check the latest applicable FEMA notification and current government licensing instructions for the transaction.
Official investor resources include the Defence Investor Portal and the government’s SRIJAN portal, which supports defence indigenisation opportunities. Neither substitutes for confirming the legal requirements that apply to a particular investment.
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