The union cabinet Wednesday approved a proposal to raise the foreign direct investment (FDI) ceiling in defence sector to 49 percent from the present 26 percent.
The move is designed to boost domestic defence industry of the country that imports up to 70 percent of its military requirements.
Budget 2014-15 presented to parliament last month hiked the composite cap of foreign investment to 49 percent to be approved through the Foreign Investment Promotion Board (FIPB) route and with control of the enterprise to be in Indian hands.
Currently, the government permits 26 percent FDI in defence manufacturing.
"India today is the largest buyer of defence equipment in the world. Our domestic manufacturing capabilities are still at a nascent stage," Finance Minitsre Arun Jaitley had said presenting his maiden budget.
"We are buying a substantial part of our defence requirements directly from foreign players, companies controlled by foreign governments and foreign private parties are supplying our defence requirements to us at a considerable outflow of foreign exchange," he had added.