The decision to allow 100 per cent FDI in defence marks a major push to defence manufacturing under the 'Make in India' initiative. The government has dropped the requirement for 'state of the art' technology requirement to apply for FDI relaxation above 49 per cent.
This does not mean automatic approval for defence deals. Deals above 49 per cent still need government approval but now deals not involving 'state of the art' technology can also opt the route.
While the government has been aggressively pushing global defence companies to set up manufacturing in India, one of the major limitations cited has been the 49 per cent FDI limit which meant the Indian partner holding a controlling stake in the joint venture. In the past, government has stated that relxation above 49 per cent can be given on a case by case basis through the Foreign Investment Promotion Board (FIPB) for state-of-the-art technology and depending on the extent of technology transfer.
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However in the past the major Indian corporates had opposed relaxation beyond 49 per cent arguing that Indian companies should be in control to build domestic expertise.