The Defence Ministry has suggested raising the cap on FDI in defence to 49 per cent from the current 26 per cent to help in developing partnerships between Indian and foreign military hardware manufacturing firms.
The ministry is in favour of allowing 49 per cent FDI in defence through the approval route, Defence Ministry officials said.
The suggestion comes soon after the Commerce and Industry Ministry circulated a Cabinet note for inter-ministerial consultation to allow raising of FDI limit to 100 per cent through the Foreign Investment Promotion Board (FIPB) route.
The stand taken by the Defence Ministry is in line with the promises made by BJP during election campaign and Prime Minister Narendra Modi's assertion to expand the domestic defence industrial manufacturing base in the country.
India opened up the defence equipment industry to private sector in May 2001, but restricted foreign participation to 26 per cent in this capital-intensive and sensitive sector.
India is one of the largest defence importers in the world with a minuscule component of exports and ranks among the top ten countries in terms of military expenditure.
"The bulk of the domestic production is met either through the Ordnance Factories or the Defence PSUs," the Department of Industrial Policy and Promotion (DIPP) had said.
"Even when defence products are manufactured domestically, there is a large component of imported sub-systems."