French DCNS has sought approval to set up an Indian subsidiary to develop Air Independent Propulsion (AIP) systems for the submarines.
DCNS has requested clearance from the Foreign Investment Promotion Board (FIPB) for 100 percent FDI to invest over INR 100 crore (US $15 million), ET reported citing officials involved in the process as saying Thursday.
The French company has applied under a special category that considers applications for high-end critical defence technology not available in the country.
In rules that were changed in November, FDI of up to 49% has been allowed in defence under automatic rule and proposals with higher investment levels have to be approved on a case-by-case basis by FIPB in consultation with ministries.
DCNS is also bidding for a mega-contract to build four landing platform docks in partnership with Reliance Defence, has asked for 100% FDI as it wants to develop AIP equipment in India with local companies, including preparation of detailed drawings, 3D modelling and design for future submarine systems.
AIP is essential for future Indian submarines, with the Defence Research & Development Organisation also trying its hand at a developmental project. There are also plans to fit the AIP system on some Scorpene submarines that are under construction in Mumbai. DCNS, which has contracted six Scorpenes, is in contention for a follow-on order for at least two more.
Despite efforts to market India as a defence manufacturing hub, actual FDI inflow in the sector has been dismal, with just over Rs 1crore flowing in last year.