Raising the FDI limit by itself may not enthuse the foreign investors as per the expectations. To make the defence sector more attractive for foreign investment, a whole lot of other related issues will have to be addressed by the government.

It would be helpful if MoD issues a formal order addressing the concerns expressed by various stakeholders about certain aspects of the negative list, especially its impact on projects that involve foreign OEMs and the purpose of bifurcating the capital budget.

The negative list of embargoed defence items is one more step towards creating a strong domestic arms industry and making India self-reliant in defence production.

Although the new measures announced to fast-track the defence sector are significant, they do not add up to a comprehensive and overarching reforms package.

The government’s decision to allow the private sector to undertake the development of complex defence equipment is a step in the right direction. It will help forge a larger innovation system to meet the diverse requirements of national security. However, caution may be required to avoid duplication of efforts and prevent indirect import.

The government seems to have little fiscal space for accommodating the demand of the armed forces for additional funds, given its quantum on the one hand and the state of its revenues on the other which are already quite stressed.