Indian Aerospace & Defence Sector Recent Changes and their Impact - Part 1

The Indian military aerospace and defence (A&D) industry has seen a slew of policy decisions being taken and implemented during the Covid era. From increasing the automatic route limit for foreign investment in the sector, to imposing a ban on import of various defence items, it is clear that the Government is focused on the growth and development of the sector. This two-part post analyses the various policy decisions taken recently and their impact on the various players in the A&D ecosystem. In the first part, we analyse the existing A&D sector landscape and its evolution so far. In part two, we analyse the impact of the various recent policy changes and the changing role of the players in the sector.
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REVISED FDI LIMIT IN DEFENCE - Impact and Opportunity

On May 16, 2020, as part of the economic packages being announced to revive the Indian economy in the wake of the COVID-19 pandemic, the Finance Minister announced that the automatic route limit for foreign investment in the defence sector will be raised from 49% to 74%. This had been a long-standing demand of the foreign original equipment manufacturers (OEM) lobby, stating unease in transferring high-end, proprietary technology to Indian entities that they cannot control. Therefore, the Government’s move is definitely a positive step, which should accelerate foreign investment in the sector, but the impact of certain other aspects of the present regulatory regime may dampen this positive sentiment. This post discusses the various factors that would impact OEM decision making around investing in the India’s defence sector, and further steps that should be taken to make high-end technology transfer to India a reality.
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