NEW DELHI: India has rejected a proposed tie-up between its biggest defence contractor, Larsen & Toubro, and Franco-German aerospace and defence group EADS, a report said today.

The Financial Times said EADS and L&T had planned to form a joint venture to supply electronic warfare systems, avionics and radars, but it was rejected because it would exceed caps on foreign investment.

The upper limit allowed by the Foreign Investment Promotion Board (FIPB) for foreign direct investment in companies in the defence sector is 26 per cent, the FT said, which did not cite its sources.

Amit Mitra, the secretary general of the Federation of Indian Chambers of Commerce and Industry, argued that the limits on foreign ownership should be raised. “The defence sector could be the next sector of massive growth, but foreign participation is necessary,” Mitra told the newspaper.

India has a five-year military procurement budget of $30 billion, which is an all-time high as the government overhauls the country’s hardware.

BAE Systems of Britain also had to redraw plans for a joint venture to supply armoured vehicles in partnership with carmaker Mahindra & Mahindra. It had sought a 49-per cent stake in the joint venture. FIPB this week approved a revised split of 26 per cent for BAE and 74 per cent for Mahindra, the FT said.