Industry body Assocham today asked the government to review foreign investment policy, particularly related with FIIs, in the defence sector.
In April, the government has said that companies engaged in defence manufacturing will not be allowed to further increase foreign portfolio investment beyond August last year level.
This condition "goes against the principle of a stable policy framework which is needed to attract large investments in this sector", it said.
It also said that the April decision has brought the entire process of issuance of industrial licences to domestic private sector companies to a standstill and, "therefore, be amended,", it said in a statement.
Several domestic companies have applied to the DIPP for industrial licences to manufacture a wide range of defence products and shares of most of these companies are listed.
FIIs inflows should be encouraged in order to boost country's foreign exchange reserves, it said.
"FIIs are in no position to exercise any control over management of the affairs of Indian companies. Further there are adequate checks and balances within the existing policy framework to protect our strategic interests," it added.
The chamber said that "there is urgent need to review the existing foreign investment policy applicable to the defence sector" on the issue of FIIs investment so that the matter of industrial licences to several Indian companies which has come to a grinding halt can be restarted and clearances can be expedited.
Speedy implementation of projects in this critical sector of the national economy will contribute in reducing country's dependence on imports, it added.
