The Delhi-Paris Axis: Building A Strategic Partnership In The Defence Sector

1. BACKGROUND

The Franco-Indian defence relationship is one of the most significant strategic pillars between Europe and India. Bilateral cooperation has expanded since 1998 across the entire capability spectrum—aerospace, naval, land, space and digital systems—culminating in the elevation to Special and Comprehensive Strategic Partnership status in February 2026¹ . The Strategic Defence Cooperation Pact was renewed for a further ten years at the 6th India-France Annual Defence Dialogue in Bengaluru. That summit also marked a broader acceleration of technological cooperation: a DGA-DRDO technical cooperation agreement; the joint inauguration of the H125 final assembly line by Airbus and TATA Advanced Systems (the first private-sector facility of its kind in India); the Safran / Hindustan Aeronautics partnership on the Indian Multi-Role Helicopter; MRO facilities for the LEAP and M88 engines; a joint working group on advanced military technologies; the CNES-ISRO partnership; and a renewed framework on critical minerals and rare earths.

India has ranked as the world’s leading arms importer since 2014 according to SIPRI², driven by persistent regional tensions and an accelerated modernisation effort. French commercial successes reflect that trajectory: the Inter-Governmental Agreement of 28 April 2025 for 26 Rafale Marine aircraft for the Indian Navy (approximately €6.5 billion);³ the Acceptance of Necessity granted by the Defence Acquisition Council on 12 February 2026 for 114 additional Multi-Role Fighter Aircraft from Dassault Aviation (approximately €30.2 billion);⁴ a follow-on order for SCALP from MBDA; and the agreement between India Optel Limited and Safran Electronics & Defence on local manufacture of two combat-proven precision systems⁵ . On 18 March 2026, the President of the French Republic urged representatives of the Defence Industrial and Technological Base (DITB) not to “always wait for the contract to be signed” and to “provide more funding and take more risks”⁶ . The political conclusion of the EU-India Free Trade Agreement on 27 January 2026, though excluding defence trade (a national competence of EU Member States), will facilitate industrial trade through tariff and regulatory liberalisation; noting however that formal signature and ratification of the FTA and the parallel EU-India Security and Defence Partnership remain pending.

2. THE REGULATORY FRAMEWORK

Access to the Indian defence market is conditioned on a layered regulatory architecture operating in parallel on the French export side and the Indian investment, licensing and offset side. The Make in India policy, designed to strengthen India’s strategic autonomy through local industrial capacity and substantial technology transfer, provides the policy framework; the substantive constraints lie in the texts that follow.

2.1 The French Export Control Regime

The export of war materials and associated technologies from France requires prior authorisation from the Commission interministérielle pour l’étude des exportations de matériels de guerre (CIEEMG) under Articles L. 2335-1 et seq. of the Code de la défense⁷ . Authorisation is granted based on the equipment, the end-user and the geopolitical context of the destination. The licence scope delineates the operating zone of any joint venture, and its processing timeline frequently sets the transaction’s pace. The control regime is reinforced by a structural advantage: the French platforms relevant to most Franco-Indian programmes (Rafale, Scorpène, CAESAR) are produced entirely outside the United States’ ITAR regime. Technology transfers therefore carry no US re-export restriction, end-user certificates require no third-country approval, and access to third markets remains free of any foreign government veto.

2.2 The Indian regulatory regime

On the Indian side, foreign investment is governed by the Foreign Exchange Management Act, 1999 and the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (the NDI Rules)⁸. Foreign direct investment proceeds either under the Automatic Route (no prior approval required) or under the Government Route (prior approval required). The applicable route is determined by the sector of activity of the investee company; sectoral caps are set out in Schedule I of the NDI Rules. In defence⁹, foreign investment is permitted up to 100%: the Automatic Route applies up to 74%, the Government Route is required beyond, granted where the investment is likely to result in access to modern technology. For companies seeking new Industrial Licences, the Automatic Route applies up to 74%; for entities not seeking an industrial licence or which have already obtained a government approval for FDI in defence, the Automatic Route up to 49% applies for infusion of fresh foreign funds or transfer of stake to new foreign investor,. Higher levels require Government Route approval. Any change in shareholding pattern must be notified to the Ministry of Defence within 30 days. Foreign investment is also subject to a security clearance from the Ministry of Home Affairs and a residual national-security review, and to a structural requirement of self-sufficiency of the investee company in product design, development, maintenance and life-cycle support¹⁰ . Government Route applications are filed via the National Single Window System under the DPIIT standard operating procedure, with a published processing time of approximately ten to twelve weeks (longer in practice)¹¹.

Manufacturing defence equipment in India requires, in addition, an Industrial Licence granted by the Department for Promotion of Industry and Internal Trade (DPIIT), under the Industries (Development and Regulation) Act, 1951 for combat platforms (defence aircraft, warships) and the Arms Act, 1959 for arms and ammunition (tanks, rockets and similar items); the complete list of items requiring an Industrial Licence is set out in Press Note 1 (2019 Series).

Beyond entry and licensing, the framework imposes an offset obligation under the Defence Acquisition Procedure, 2020 (DAP 2020)¹² , which organises capital acquisitions into five categories. The offset policy applies exclusively to acquisitions in the Buy (Global) category above a prescribed value threshold, with a 30% offset obligation. Discharge methods include direct purchases from Indian enterprises, equity or non-equity investment in defence manufacturing (including co-production or licensed production), transfer of technology to Indian industry or to the Defence Research and Development Organisation (DRDO), and DRDO acquisition of critical technologies. Government-to-government procurement, urgent operational requirements and niche-technology acquisitions fall outside the scope. The draft DAP 2026 contemplates a per-RFP offset framework¹³ . It follows that the CIEEMG dossier and the Indian licence applications generally require concurrent submissions, inconsistencies between the two generating delays before both administrations; intergovernmental agreements, where they exist, accelerate the sequencing through fast-track provisions tied to specific defence programmes.

3. THE BASICS OF A JOINT VENTURE IN THE DEFENCE SECTOR

3.1 The Memorandum of understanding and technology transfer

The Memorandum of Understanding (MoU), negotiated upstream of the shareholders’ agreement, is a keystone document of the transaction. It locks the regulatory perimeter and allocates risks and responsibilities. In particular, the MoU: (i) identifies the technologies to be transferred, distinguishing pre-existing proprietary assets from those to be co-developed; (ii) delimits the territorial scope of any manufacturing licence; and (iii) specifies the reversion mechanics applicable upon termination. In so doing, it mirrors the perimeter that the CIEEMG will ultimately define at the authorisation stage.

Within the venture, mandatory local-content rules transform technology transfer from a commercial negotiation into a regulatory prerequisite for market access. A manufacturing licence, bounded by reference to a defined programme, territory and end-user, can be controlled during the venture’s life and reversed on termination. The contractual instruments accompanying the licence are well established in the French defence sector: ring-fencing of the transferred perimeter, sub-licensing restrictions, periodic audit rights, reversion clauses capturing locally developed improvements, and non-solicitation provisions applicable to the human resources implementing the joint venture.

3.2 The shareholders’ pattern

Most strategic defence ventures combine a minority French shareholder with majority Indian ownership. The French partner brings the core technology, programme management capability and export market access—the commercial rationale of the venture. This pattern is illustrated by Dassault Reliance Aerospace Limited¹⁴ in Nagpur, the Safran Electronics & Defense / Bharat Electronics¹⁵ joint venture for Hammer, the Airbus / TATA Advanced Systems final assembly line for H125 helicopters¹⁶ , and the earlier Tata Lockheed Martin Aerostructures (TAL: 76%) and Tata Boeing Aerospace (TAL: 51%) precedents¹⁷.

The shareholders’ agreement should establish a governance framework that complies with regulatory requirements while preserving the foreign investor’s rights and interests. Usual reserved matters extend beyond budget approvals and capital calls to encompass any event capable of triggering a CIEEMG re-notification obligation: changes to the technology perimeter, equipment reclassification, new end-user approvals, or changes of control. Veto rights are calibrated to that regulatory exposure and complemented by golden share mechanisms, board composition arrangements, designation of key executives and a casting vote on technology-sensitive decisions. Intellectual property follows the same logic: ownership at parent level, a narrow and revocable licence to the Indian operating entity, and reversion of all rights to the parent on winding up. Finally, liquidity provisions must take into account any host-country approval required for a change of control in an entity producing defence equipment and the corresponding CIEEMG notification.

Footnotes

1. India-France Joint Statement, 17 February 2026 (elevation to “Special and Comprehensive Strategic Partnership”): https://www.pib.gov.in/PressReleasePage.aspx?PRID=2229412®=3&lang=2

2. SIPRI, Trends in International Arms Transfers https://www.sipri.org/databases/armstransfers

3. IGA of 28 April 2025 (26 Rafale Marine, ~€6.5 billion, including transfer of technology, fuselage production and engine MRO): https://www.pib.gov.in/PressNoteDetails.aspx?ModuleId=3&NoteId=154353®=3&lang=2

4. Defence Acquisition Council communiqué, 12 February 2026 (Acceptance of Necessity for 114 MRFA, ~€30.2 billion). The Acceptance of Necessity initiates negotiations and does not constitute a contract: https://www.mod.gov.in/

5. MBDA SCALP follow-on order (~€300 million, February 2026); India Optel Limited / Safran Electronics & Defence collaboration agreement on the local manufacture of two combat-proven precision systems.

6. Address of the President of the French Republic to representatives of the BITD, 18 March 2026: https://www.elysee.fr/emmanuel-macron/2026/03/18/france-libre-le-nom-du-nouveau-porte-avions-devoile-sur-le-site-naval-group-de-nantes-indret

7. Articles L. 2335-1 et seq. of the Code de la défense, supplemented by Décret n° 2014-1612 of 26 December 2014.

8. Foreign Exchange Management Act, 1999, and Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (the NDI Rules), Schedule I (defence sector): https://www.rbi.org.in/Scripts/BS_FemaNotifications.aspx

9. Defence refers to the defence industry which is subject to industrial license under the Industries (Development and Regulation) Act, 1951 and manufacturing of small arms and ammunition under the Arms Act, 1959.

10. NDI Rules, Schedule I: 30-day notification to the Ministry of Defence; security clearance from the Ministry of Home Affairs (Security Clearance Portal); self-sufficiency of the investee in product design, development, maintenance and life-cycle support facility of the product being manufactured in India; residual scrutiny on national-security grounds.

11. DPIIT Standard Operating Procedure for FDI proposals; National Single Window System https://www.dpiit.gov.in/

12. Defence Acquisition Procedure, 2020 (DAP 2020); five categories of capital acquisition: Buy (Indian – Indigenously Designed Developed and Manufactured), Buy Indian, Buy and Make (Indian), Buy (Global – Manufacture in India), Buy (Global). 30% offset obligation on Buy (Global) above the prescribed threshold: https://www.mod.gov.in/

13. Draft Defence Acquisition Procedure, 2026, in public consultation; per-RFP offset framework. Final text pending.

14. As of late 2025, Dassault Aviation is the majority shareholder of Dassault Reliance Aerospace Limited (DRAL) holding 51% stake, increasing from its original 49%.

15. As per the official press release of November, 2025, the joint venture company will be set up as private limited company with 50:50 shareholding https://www.pib.gov.in/PressReleasePage.aspx?PRID=2193714®=3&lang=2

16. India-France Joint Statement, 17 February 2026 (precited): H125 final assembly line by Airbus and TATA Advanced Systems; Safran Electronics & Defense / Bharat Electronics joint venture (Hammer).

17. Tata Lockheed Martin Aerostructures Limited (TAL: 76%, Lockheed Martin: 24%); Tata Boeing Aerospace Limited (TAL: 51%, Boeing: 49%).

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