Local arms of foreign defence firms not to qualify as ‘Indian vendors’ | External Affairs & Defence Security News
TOINEWS February 11, 2026 0
This policy would govern acquisitions spanning tanks and warships to fighter jets and drones.
The move offers relief to domestic industry after the question of granting such entities that status was examined last year by a special task force set up to steer next-generation reforms in key sectors.
In October, the Society of Indian Defence Manufacturers opposed any such potential move in a letter to the Ministry of Defence (MoD) and expressed “deep concern, should such a proposal or recommendation be under consideration.”
The classification of an entity as an “Indian vendor” determines its eligibility to participate in various acquisition categories. These are set out in the Draft Defence Acquisition Procedure (DAP) 2026, which the MoD has released for comments and suggestions from stakeholders.
Once approved, it will replace the DAP 2020 currently in force.
For instance, under the “Buy Indian–Indigenously Designed, Developed and Manufactured (IDDM)” category, equipment to be procured must be indigenously designed, developed and manufactured by Indian vendors.
This definition excludes wholly-owned local subsidiaries of foreign defence companies.
The Buy (Indian–IDDM) route will be given first preference in selecting the acquisition category, provided the stipulated conditions are met.
The same condition applies to entities under the Strategic Partnership (SP) model, which seeks to facilitate the participation of private Indian firms in the ‘Make in India’ defence programme.
Similarly, under the “Development Scheme” categories — comprising “Make”, “Innovation in Defence Excellence (iDEX)”, “Technology Development Fund (TDF)”, and “Design & Development (D&D)” —which require design and development by indigenous design agencies or industry prior to procurement, participation is limited to entities classified as “Indian vendors.” And, here, too, that definition excludes wholly-owned local subsidiaries of foreign defence companies.
Only one sub-category, Make-III, does not impose this additional condition.
While laying down the conditions for classification as an “Indian vendor”, the draft DAP 2026 prescribes two additional requirements for the Buy (Indian–IDDM), Make-I, Make-II, development-cum-production partner under the D&D category, and Strategic Partnership Model categories.
The first is ownership by resident Indian citizens, under which a company will be regarded as ‘owned’ by resident Indian citizens if more than 50 per cent of its capital is directly or beneficially held by resident Indian citizens and/or by Indian companies that are ultimately owned and controlled by resident Indian citizens.
This effectively caps permitted foreign direct investment (FDI) at 49 per cent. “No pyramiding of FDI in Indian holding companies or in Indian entities subscribing to shares or securities of the applicant company or the strategic partner shall be permitted. Indirect foreign investment shall be accounted for in counting the 49 per cent FDI,” states the DAP.
The second is control by resident Indian citizens, which, as defined in the Companies Act, 2013, includes the right to appoint a majority of the directors or to control management or policy decisions. This is by virtue of shareholding, management rights, shareholders’ agreements or voting agreements.
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Opposed in an October letter to the MoD -
Feared Indian partners would be rendered redundant in JVs -
Warned it would undermine development and retention of -
IP domestically
