The government Thursday hiked the cap on foreign direct investment (FDI) in defence to 49 percent from the present 26 percent, saying there was considerable outflow of foreign exchange due to international companies meeting a large part of defence requirements.
Finance Minister Arun Jaitley said in his budget speech that the composite cap of foreign exchange was being raised to 49 percent with full Indian management and control through the route of the Foreign Investment Promotion Board (FIPB).
"India today is the largest buyer of defence equipment in the world. Our domestic manufacturing capacities are still at a nascent stage. We are buying a substantial part of our defence requirements directly from foreign players," he said.
Jaitley said companies controlled by foreign governments and the foreign private sector were supplying defence requirements at a considerable outflow of foreign exchange.
"Currently we permit 26 percent FDI in defence manufacturing. The composite cap of foreign exchange is being raised to 49 percent with full Indian management and control through the FIPB route," Jaitley said.