India opens door wider for foreigners in defense manufacturing

India will give greater direct access to foreign investors in its defense sector as the nation seeks to lure more capital to an economy ravaged by the coronavirus pandemic.

Foreigners can now invest up to 74% in defense manufacturing under the automatic route, up from 49% previously, the trade ministry said in a statement Friday, as it implemented the plan announced by Finance Minister Nirmala Sitharaman in May.

While the country allows 100% FDI in defense, only 49% was permitted under the so-called automatic route thus far. The revision in the investment-cap comes amid Prime Minister Narendra Modi’s call to make India self-reliant at a time when the pandemic has disrupted supply chains globally.

Foreign investors’ interest in India’s defense sector was negligible even without the pandemic. Defense industries attracted just $9.5 million in FDI over the last two decades for which data is available, whereas overall overseas investment flows into the country stood at about $50 billion in 2019 alone.

“This will enhance ease of doing business and contribute to growth of investment, income and employment,” Trade Minister Piyush Goyal said via Twitter. “Amendments will enhance self-reliance in defense production, while keeping national interests and security paramount.”

The changes would come into effect from the date of Foreign Exchange Management Act notification, it said.