How much foreign investment is allowed in Indian defence manufacturing?

Up to 74 percent is permitted through the automatic route under Press Note 4 (2020 Series), meaning no prior government approval is needed for investment up to that level. Beyond 74 percent, up to 100 percent is possible, but only through the government route and only where the investment is likely to bring access to modern technology, a case-by-case decision rather than an automatic entitlement.

Yes. Press Note 4 (2020 Series) makes clear that foreign investment in defence, whichever route it uses, remains subject to a national security review. The automatic route removes the need for prior government approval of the investment itself; it does not remove the separate national security screening that defence sector investment carries.

No. DPIIT issues industrial licences under the Industries (Development and Regulation) Act and the Arms Act only to Indian entities, companies incorporated under the Companies Act, sole proprietorships and partnerships. A foreign company invests in such an Indian licence holder instead, within the FDI limits, rather than acquiring or applying for the licence directly in its own name.

Press Note 4 (2020 Series) draws the line at 74 percent for the automatic route and reserves the remaining band, up to 100 percent, for the government route, where the case has to show it is likely to bring access to modern technology. That structure lets larger or more sensitive investments get individual scrutiny rather than passing through as a formality.

India's defence production reached a record Rs 1.78 lakh crore in FY 2025-26, up 15.6 percent year on year, with the private sector contributing about 24 percent of that and DPSUs the remainder. The government's own target is Rs 3 lakh crore of annual production by 2029, which sets the scale of demand behind the 2020 liberalisation of the FDI limits.