In May 2001, the defence sector was opened up to 100% for Indian private sector participation with FDI permissible up to 26%, both subject to licensing. A very large number of Indian private sector companies are already working with Defence Public Sector Undertakings and Ordnance Factories and supplying input materials to them. Providing access to the private sector in defence production introduces an element of competition so that defence industry as a whole upgrades and improves its functioning. This will also facilitate utilization of resources available both in the public and private sector to accelerate the pace of self-reliance in defence production.

Defence Procurement Procedure (DPP) 2006 and Defence Procurement Manual (DPM 2006) under implementation with effect from 1st September 2006, provide for direct dealing with Original Equipment Manufacturers (OEMs) or Authorised Vendors or Government sponsored Export Agencies (applicable in case of countries where domestic laws do not permit direct export by OEMs). Further, the procedures inter-alia incorporate provisions for penalties being imposed if any seller engages any individual or firm, whether Indian or foreign whatsoever, to intercede, facilitate or in any way recommend to the Government of India or any of its functionaries, whether officially or unofficially, to the award of Contract to the Seller.