In its boldest move yet to integrate with the global defense supply chain, the Indian government plans to allow 74% Foreign Direct Investment (FDI) via the automatic route for defense companies that already hold industrial licenses.
According to reports from Reuters on January 16, 2026, this policy shift is designed to treat “existing” license holders with the same liberty as “new” applicants—a major parity issue that had previously forced existing foreign partners into a tedious government approval process for majority ownership.
Key Changes in the 2026 FDI Proposal
The new directive, expected to be officially enacted within the next few months, addresses two primary bottlenecks:
1. Parity for Existing Licensees
Currently, the 74% automatic route (no government approval needed) is only available to companies seeking fresh industrial licenses. Companies already operating in India were capped at 49% under the automatic route. The new plan lifts this cap to 74% for everyone, allowing existing foreign partners (like BAE Systems, Thales, or Lockheed Martin) to increase their stakes without bureaucratic delays.
2. Dropping the “Modern Technology” Clause
The government is reportedly set to drop the vague condition that foreign investment beyond 74% is only permitted if it results in “access to modern technology.” * The Problem: Experts have long criticized this wording as ambiguous, leading to inconsistent approvals.
- The Solution: By removing this clause, the government aims to provide clear, predictable rules that encourage Tier-1 and Tier-2 global vendors to bring their proprietary technology to India with the reassurance of majority control.
Impact on Major Global Defense Players
This reform is expected to trigger a wave of “stake-raising” activities from global defense giants who have been hesitant to share their most sensitive intellectual property (IP) under a 49% ownership cap.
| Potential Beneficiary | Existing Partnership (Example) | Significance of 74% Stake |
| Saab (Sweden) | Carl-Gustaf M4 Production | Full control over manufacturing and export quality. |
| Dassault (France) | Rafale Ecosystem (Tata JV) | Easier integration of advanced F4/F5 standard tech. |
| Boeing (USA) | Apache/Chinook Components | Streamlined investment in the upcoming “Fighter” tenders. |
| Thales (France) | Radar & Avionics JVs | Direct ownership of high-end electronic warfare IP. |
Why Now? The Strategic Context
The move aligns with India’s “Atmanirbhar Bharat” (Self-Reliant India) mission, especially following heightened regional security tensions in late 2025.
- Export Hub Vision: By allowing 74% control, India hopes foreign firms will not just manufacture for the Indian military but use their Indian subsidiaries as global export hubs.
- FDI Surge: Defense FDI equity inflows reached record highs in 2025, and this policy is expected to double that momentum in the 2026-27 fiscal year.
Conclusion
By shifting the goalposts from 49% to 74% for all players and removing subjective tech-transfer conditions, India is finally signaling that it is “open for business” in the most sensitive of sectors. For the Indian Air Force and Army, this means faster access to world-class equipment made right here in India. For global defense majors, it means the freedom to lead their Indian ventures with the same control they enjoy in their home markets.
