FDI in defence: Lessons from the automobile industry

This paper is authored by Sudhish Kumar Jaini and Navin Varma, ORF, New Delhi.

India has emerged as a global automotive manufacturing hub, with exports contributing a significant revenue percentage for auto firms. This growth has been driven by liberalised FDI norms, competitive market dynamics, and positive policy interventions, attracting foreign auto firms to set up plants locally. In contrast, defence manufacturing continues to lag, constrained by regulatory bottlenecks, limited foreign participation, and non-availability of critical technologies, resulting in continued imports of defence equipment. This brief analyses the divergent trajectories of these sectors. Drawing on comparative policy analysis, it recommends measures such as differentiated FDI limits to catalyse defence manufacturing. The authors conclude that, if supported by market-aligned policies, defence manufacturing in India can replicate the auto sector’s success and transform the country into a defence production powerhouse, thereby aiding in the achievement of the desired strategic autonomy.

FDI

Mobility provides advantages to combat forces. The Carthaginian general Hannibal’s legendary crossing of the Alps in 218 BCE is one of history’s most audacious demonstrations of strategic mobility, bypassing Roman forces and taking the fight directly to Italy via an unexpected northern route. Indeed, mobility is a key enabler for warfighting, allowing forces to reach critical areas faster than the enemy anticipates, enabling surprise and initiative. Mobile forces can better evade threats, reposition under fire, and adapt to changing battlefield conditions.

In contemporary times, most combat units in the Indian Armed Forces operate hundreds of vehicles, serving as weapon platforms, troop and logistics’ carriers or executing operational tasks such as reconnaissance and combat manoeuvres. One can safely state that the Indian defence industry depends heavily on the automotive sector, as automobile technology drives the development of complex combat vehicles, such as armoured vehicles and weapon platforms, and provides a large number of components for various weapons systems.

This paper can be accessed here.

This paper is authored by Sudhish Kumar Jaini, Navin Varma, ORF, New Delhi.