Schedule I explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Serial number 6 of the sectoral Table in Schedule I to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 governs foreign investment in the defence industry and in manufacturing of small arms and ammunition. The whole entry was substituted in December 2020: the automatic route now runs up to 74%, the Government route applies beyond it, and six conditions follow. The Rules are made under clauses (aa) and (ab) of sub-section (2) of section 46 of the Foreign Exchange Management Act, 1999.
This article states the position as per the Rules notified on 17 October 2019 (S.O. 3732(E)) as amended by the notifications named in this article; the latest amendment consulted is S.O. 4870(E) dated 2 September 2026. Later amendments, press notes and sector regulators' conditions should be checked before acting. Defence proposals need early planning, and our FEMA advisory service can review the route with you.
The sectoral cap for defence is hundred per cent. The entry route is automatic up to 74% and Government route beyond 74% "wherever it is likely to result in access to modern technology or for other reasons to be recorded". FDI up to 74% under the automatic route is for companies seeking new industrial licences. A company not seeking an industrial licence, or one that already has Government approval, must file a declaration with the Ministry of Defence within thirty days of a change in shareholding for FDI up to 49%, and needs Government approval to go beyond 49%. Every investment is subject to security clearance and to review on grounds of national security.
The entry as substituted
| Serial number | Sector or activity | Sectoral cap | Entry route |
|---|---|---|---|
| 6 | Defence (heading) | - | - |
| 6.1 | Defence Industry subject to Industrial license under the Industries (Development and Regulation) Act, 1951 and Manufacturing of small arms and ammunition under the Arms Act, 1959 | Hundred per cent | Automatic up to 74%; Government route beyond 74% wherever it is likely to result in access to modern technology or for other reasons to be recorded |
| 6.2 | Other conditions (a) to (f) | - | - |
The Table prints the cap as a percentage figure; it is written in words throughout this article.
Which notification made the change
Serial number 6 and the entries relating to it were substituted as a whole by the Foreign Exchange Management (Non-debt Instruments) (Fourth Amendment) Rules, 2020, S.O. 4441(E) dated 8 December 2020, which came into force on the date of its publication in the Official Gazette. None of the later notifications up to 2 September 2026 changes the entry.
As notified on 17 October 2019, the cap was the same but the route was automatic up to 49% and Government route beyond 49%, with four conditions. That earlier text is history; the entry below is the 2020 text.
Serial number 6.1: activity, cap and route
Two activities are named:
- the defence industry, subject to industrial licence under the Industries (Development and Regulation) Act, 1951; and
- manufacturing of small arms and ammunition under the Arms Act, 1959.
The cap column prints one figure for both. The route column splits at 74%. Up to that level the route is automatic. Beyond it the Government route applies, and the entry adds the words "wherever it is likely to result in access to modern technology or for other reasons to be recorded". The Rules do not say who records those reasons or how; nothing further is printed.
Serial number 6.2: the six conditions
(a) New industrial licences. FDI up to 74% under the automatic route shall be permitted for companies seeking new industrial licences.
(b) Companies not seeking a licence, or already approved. Infusion of fresh foreign investment up to 49% in a company not seeking an industrial licence, or which already has Government approval for FDI in defence, requires the company to submit a declaration with the Ministry of Defence in cases of change in equity or shareholding pattern or transfer of stake by an existing investor to a new foreign investor, for FDI up to 49%, within a period of thirty days of such change. Any proposal for raising FDI beyond 49% from such companies shall require Government approval.
(c) Licence applications. Licence applications will be considered by the Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, in consultation with the Ministry of Defence and the Ministry of External Affairs.
(d) Security clearance. Foreign investment in the sector shall be subject to security clearance by the Ministry of Home Affairs and as per guidelines of the Ministry of Defence.
(e) Self-sufficiency. The investee company shall be structured to be self-sufficient in the areas of product design and development, and the investee or joint venture company, along with the manufacturing facility, shall also have maintenance and life cycle support facility of the product being manufactured in India.
(f) National security review. Foreign investments in the defence sector shall be subject to scrutiny on grounds of national security, and the Government reserves the right to review any foreign investment in the defence sector that affects or may affect national security.
Reading conditions (a) and (b) together
The route cell says "Automatic up to 74%". Conditions (a) and (b) show that the automatic route does not reach 74% for every company:
| Kind of company | Up to 49% | Above 49% and up to 74% | Beyond 74% |
|---|---|---|---|
| Seeking a new industrial licence | Automatic (condition (a)) | Automatic (condition (a)) | Government route, as the route cell prints |
| Not seeking an industrial licence, or already holding Government approval for FDI in defence | Fresh investment permitted with a declaration to the Ministry of Defence within thirty days of the change (condition (b)) | Government approval (condition (b)) | Government approval (condition (b)) |
This table restates the words of conditions (a) and (b); readers should check the Gazette text for their own case.
Investors barred or restricted by rule 6(a)
Rule 6(a), as substituted by the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2026, S.O. 2174(E) dated 1 May 2026, adds two limits that sit above the Table:
- an entity or citizen of a country sharing a land border with India, or an investment beneficially owned from such a country, shall invest only under the Government route;
- a citizen of Pakistan or an entity incorporated in Pakistan shall invest only under the Government route, "in sectors or activities other than defence, space, atomic energy" and sectors prohibited for foreign investment. Defence is therefore outside what such an investor may enter.
See our article on who may invest and the land-border countries.
A worked example
Aldermoor Systems Limited, a foreign company from a country that does not share a land border with India, plans a joint venture, Vajra Aero Components Private Limited, which will apply for a new industrial licence. Aldermoor proposes to hold 74%. Condition (a) permits FDI up to 74% under the automatic route for a company seeking a new industrial licence. The investment remains subject to security clearance by the Ministry of Home Affairs, the Ministry of Defence guidelines, the self-sufficiency condition and national security review.
Dhruv Optics Private Limited already makes defence items and is not seeking a new licence. A foreign investor takes 30% from an existing shareholder. Under condition (b), Dhruv must submit a declaration with the Ministry of Defence within thirty days of that change. If the investor later wants to move beyond 49%, Government approval is required.
Need help with a defence joint venture?
The answer depends on whether a new industrial licence is sought, the level of foreign holding and the investor's country. Our FEMA advisory team works through serial number 6 and rule 6(a) with you before the shareholders' agreement is fixed.
Key takeaways
- Cap: hundred per cent. Route: automatic up to 74%, Government route beyond 74%.
- The entry was substituted by S.O. 4441(E) dated 8 December 2020.
- Automatic route up to 74% is for companies seeking new industrial licences.
- Other companies file a declaration with the Ministry of Defence within thirty days of a shareholding change for FDI up to 49%, and need Government approval beyond 49%.
- Security clearance by the Ministry of Home Affairs and Ministry of Defence guidelines apply.
- The Government may review any defence investment that affects or may affect national security.
Read next
- Serial number 5 of the Table: manufacturing and contract manufacturing
- Serial numbers 12 and 13 of the Table: space sector and private security agencies
- Schedule I paragraph 3(a): automatic route and Government route
- Joint venture in India: legal framework and FEMA
Disclaimer: Based on the Gazette text of the instrument this article names, as notified and as amended by the notifications named in the article (for the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 the latest amendment consulted is S.O. 4870(E) dated 2 September 2026), as consulted on 2 October 2026. There is no official consolidated text; the provisions were read with each amendment applied. Sectoral caps, entry routes, conditions, forms and time limits change by notification, press note and circular; later changes should be checked on the Gazette, DPIIT and Reserve Bank sites. This article is general information, not legal advice; check the official text before acting.