France-India Defence/Nuclear Opportunities

Why France-India Defence and Nuclear Is a USD 50 Billion Opportunity

In February 2026, France and India elevated their bilateral relationship to a Special Global Strategic Partnership, signing 21 agreements spanning defence, nuclear energy, critical minerals, and high technology. This is not merely diplomatic symbolism. The defence component alone is worth an estimated USD 50 billion over the next decade, anchored by the 114 Rafale Multi-Role Fighter Aircraft deal for the Indian Air Force and three additional Scorpene submarines for the Indian Navy.

For French and Indian businesses operating in defence and nuclear sectors, this partnership creates a pipeline of joint ventures, technology transfer agreements, foreign direct investment structures, and manufacturing opportunities that did not exist five years ago. Bilateral trade between the two countries reached USD 15.21 billion in FY25, with over 700 French companies operating in India and supporting 450,000 direct jobs.

This guide examines the specific business opportunities, regulatory frameworks, and entry strategies for companies seeking to participate in the France-India defence and nuclear corridor. Whether you are a French OEM seeking to fulfil offset obligations, an Indian manufacturer looking to become a Tier-1 supplier to French defence primes, or a services company targeting the nuclear energy value chain, the structural and regulatory guidance below will help you plan your market entry.

The Rafale Programme: India's Largest Defence Procurement

The 114 Rafale MRFA Deal

On 12 February 2026, India's Defence Acquisition Council granted Acceptance of Necessity for the procurement of 114 Rafale Multi-Role Fighter Aircraft for the Indian Air Force. The deal structure is significant for business:

• 18 aircraft will be delivered in fly-away condition from France
• 96 aircraft will be manufactured in India under the Make in India framework
• Estimated contract value: approximately INR 3.25 lakh crore (USD 36-38 billion)
• 50% offset obligation, requiring Dassault, Safran, Thales, and MBDA to invest half the contract value back into India

The 26 Rafale-M Naval Deal

Signed as an Inter-Governmental Agreement on 28 April 2025, this deal procures 26 Rafale-M aircraft for the Indian Navy. It includes technology transfer and integration of indigenous weapons systems aligned with Aatmanirbhar Bharat (self-reliant India).

Business Implications of Offset Obligations

The 50% offset clause is where the business opportunity lies for Indian companies. French OEMs must invest approximately USD 18-19 billion into the Indian defence ecosystem through:

• Direct purchases from Indian defence manufacturers
• Joint ventures with Indian companies
• Technology transfer agreements
• Investment in Indian defence R&D
• Setting up manufacturing facilities in India

Tata Advanced Systems Limited and Dassault Aviation have already signed an agreement to manufacture Rafale fuselage sections at a new facility in Hyderabad, the first such production line outside France. Safran has confirmed an M88 engine assembly line in India and entered a joint venture with Bharat Electronics Limited (BEL) to manufacture HAMMER air-to-surface missiles in India.

Scorpene Submarine Programme and Naval Defence

India completed the P-75 Scorpene submarine project with the sixth submarine commissioned in January 2025. Three additional Scorpene submarines have been approved for construction at Mazagon Dock Shipbuilders Limited (MDL), with indigenous content expected to rise to approximately 60%.

For companies in the naval defence supply chain, the opportunity extends to:

• Submarine component manufacturing (propulsion, sonar, weapons systems)
• MRO (Maintenance, Repair, and Overhaul) services
• Training and simulation systems
• Port infrastructure and logistics

The Indian Navy's expansion plans, combined with France's willingness to transfer submarine technology, create a long-term pipeline for naval defence joint ventures structured under India's FDI regime.

FDI Framework for Defence Sector Entry

Current FDI Caps

India's FDI policy for the defence sector operates under a tiered structure:

Key Regulatory Requirements

Foreign companies entering Indian defence manufacturing must navigate:

• Industrial Licence from the Department for Promotion of Industry and Internal Trade (DPIIT)
• Security clearance from the Ministry of Home Affairs
• Defence offset compliance under the Defence Acquisition Procedure (DAP) 2020
• FEMA compliance for all foreign investment transactions, including FC-GPR filing with the RBI
• Transfer pricing documentation for intercompany transactions between the French parent and Indian subsidiary

Entity Structure Options

French companies typically enter India's defence sector through one of three structures:

1. Wholly Owned Subsidiary (up to 74% via automatic route, 100% via government route)
2. Joint Venture with an Indian defence company (most common for offset compliance)
3. Branch Office for initial market assessment and liaison (limited to support activities, cannot manufacture)

For a detailed comparison of entry structures, see our guide on branch office vs subsidiary.

Nuclear Energy: The Jaitapur Opportunity and the SHANTI Act

Jaitapur Nuclear Power Project

The Jaitapur Nuclear Power Plant in Maharashtra, planned as a collaboration between Nuclear Power Corporation of India Limited (NPCIL) and France's EDF (Electricite de France), will be the world's largest nuclear power plant when completed:

• 6 EPR reactors, each rated at 1,730 MW
• Total installed capacity: 10,380 MW
• Construction expected to begin after renewed framework agreement
• India and France signed a Letter of Intent in February 2025 on Small Modular Reactors (SMRs) and Advanced Modular Reactors (AMRs)

The SHANTI Act 2025: A Game-Changer

The Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India (SHANTI) Act, enacted in December 2025, fundamentally transforms the nuclear energy landscape:

• Private sector participation: For the first time, private Indian companies, joint ventures, and foreign entities can build, own, operate, and decommission nuclear power plants
• FDI up to 49% permitted in specified nuclear activities under the automatic route
• Graded liability framework: Replaces the open-ended liability under the old CLND Act that deterred foreign suppliers
• Statutory recognition of the Atomic Energy Regulatory Board (AERB)

The SHANTI Act resolves the single biggest barrier that prevented French nuclear companies from entering India: supplier liability risk. Under the previous Civil Liability for Nuclear Damage (CLND) Act, 2010, suppliers faced open-ended liability exposure that made commercial participation unviable.

Business Opportunities in Nuclear Energy

With the regulatory barrier removed, opportunities include:

• Reactor construction and engineering services (EPC contracts)
• Nuclear fuel fabrication (uranium enrichment up to government-set thresholds)
• Equipment manufacturing (pressure vessels, steam generators, turbines)
• Nuclear MRO services
• SMR and AMR technology partnerships
• Nuclear safety and training services

France-India DTAA: Tax Framework for Cross-Border Structures

The Double Tax Avoidance Agreement between India and France governs the tax treatment of cross-border income. Key withholding tax rates under the treaty:

The revised treaty terms are particularly favourable for French parent companies with majority-owned Indian subsidiaries, as the dividend withholding tax drops from 10% to 5%. This makes the wholly owned subsidiary structure even more tax-efficient for French defence companies operating in India.

For detailed guidance on claiming DTAA benefits, see our guide on how to claim DTAA benefits in India. Ensure your company obtains a Tax Residency Certificate from the French tax authorities and files Form 15CA/15CB for each remittance.

Critical Minerals and Indo-Pacific Cooperation

Beyond defence hardware and nuclear energy, the 2026 Special Global Strategic Partnership includes agreements on critical minerals and Indo-Pacific security that create additional business corridors. France and India have agreed to cooperate on sourcing and processing lithium, cobalt, rare earths, and other minerals essential for defence electronics, battery technology, and nuclear fuel.

For companies in the mining, minerals processing, and supply chain sectors, this creates opportunities to participate in a France-India critical minerals corridor that supports both the defence and clean energy agendas. The Indo-Pacific dimension also opens maritime security, surveillance, and logistics opportunities in the Indian Ocean Region, where both countries operate naval bases and conduct joint exercises.

Innovation and Technology Partnerships

President Macron and Prime Minister Modi launched a Year of Innovation during the February 2026 visit, with bilateral cooperation in AI, quantum computing, space technology, and cybersecurity. French technology companies establishing Indian manufacturing or R&D-led subsidiaries can evaluate concessional regimes such as Section 115BAA (22% base rate, effective 25.17% for domestic companies), noting that the window to opt into Section 115BAB (15% base rate for new manufacturing companies) closed on 31 March 2024 and is not currently available to companies incorporated after that date.

The convergence of defence, nuclear, critical minerals, and technology creates a multi-layered business opportunity that extends well beyond traditional arms procurement into long-term industrial partnerships.

Joint Venture Case Studies: Existing France-India Defence Partnerships

Safran-BEL: HAMMER Missile Manufacturing

Safran Electronics & Defence entered a joint venture with Bharat Electronics Limited to manufacture HAMMER (Highly Agile Modular Munition Extended Range) air-to-surface missiles in India for the Rafale fleet. This JV structure demonstrates the offset-driven manufacturing model.

Safran Engine MRO Facility

In November 2025, Safran inaugurated India's first deep-level aircraft engine MRO facility near Hyderabad, capable of servicing up to 300 LEAP engines annually. This is structured as a wholly owned subsidiary of Safran.

Tata-Dassault Fuselage Manufacturing

Tata Advanced Systems and Dassault Aviation signed an agreement in June 2025 to manufacture Rafale fuselage sections at a new facility in Hyderabad, the first Rafale production line outside France with first deliveries expected in FY2028.

Thales-BEL Navigation Systems

Indian and French firms have partnered to produce navigation and targeting systems for artillery guns and drones, demonstrating the breadth of opportunity beyond major platforms.

Key Lessons from These JVs

Several patterns emerge from successful France-India defence JVs that prospective entrants should note. First, the Indian partner typically holds the majority stake (51% or more) to comply with the FDI cap under the automatic route, though the French partner often retains technology control through licensing agreements. Second, manufacturing is invariably located in India, usually in defence corridors designated by the government in Uttar Pradesh and Tamil Nadu. Third, the timeline from JV formation to first production is typically 18-36 months, requiring patient capital and dedicated management bandwidth in India throughout the ramp-up period.

Practical Steps: How to Enter the France-India Defence/Nuclear Corridor

Step 1: Determine Your FDI Route

Assess whether your proposed activity qualifies for the 74% automatic route or requires the government approval route for 100% FDI. Defence manufacturing involving modern technology is more likely to receive government approval.

Step 2: Identify an Indian Partner (If JV Route)

For offset compliance, partnering with an Indian defence company is often mandatory. Key Indian partners include Tata Advanced Systems, Bharat Electronics, Bharat Forge, Hindustan Aeronautics (HAL), and Mazagon Dock Shipbuilders.

Step 3: Incorporate in India

Register a Private Limited Company or a foreign subsidiary through the MCA SPICe+ portal. The process takes approximately 7-10 business days. You will need at least one resident director in India.

Step 4: Obtain Regulatory Clearances

Secure the industrial licence from DPIIT, security clearance from MHA, and any sector-specific approvals. For nuclear activities, AERB clearance is also required.

Step 5: Establish Transfer Pricing Framework

Set up arm's-length pricing documentation for all intercompany transactions between France and India. Consider an Advance Pricing Agreement given the long-term nature of defence contracts.

Step 6: Ensure Ongoing Compliance

Maintain annual compliance including FLA returns to the RBI, GST compliance, corporate tax filings, and offset reporting to the Ministry of Defence. Defence sector compliance is more demanding than standard corporate compliance, with annual security audits, licence renewal requirements, and mandatory government notifications for any changes in shareholding, management, or manufacturing scope. Budget for a dedicated compliance function or outsource to a firm with defence sector expertise.

Key Takeaways

• The France-India defence corridor is worth an estimated USD 50 billion over the next decade, driven by the 114 Rafale deal, Scorpene submarines, and offset obligations
• Defence FDI is permitted up to 74% via the automatic route and 100% via the government route, with security clearance requirements
• The SHANTI Act 2025 opens India's nuclear energy sector to private and foreign participation for the first time, with FDI up to 49% on the automatic route
• The revised France-India DTAA reduces dividend withholding tax to 5% for majority-owned subsidiaries, improving repatriation economics
• Offset obligations create mandatory investment flows into the Indian defence ecosystem, generating JV and manufacturing opportunities for Indian companies