Bangalore / Mumbai: India has rejected a proposed joint venture between Larsen and Toubro Ltd (L&T) and a unit of European Aeronautic Defence and Space Co., (EADS) for military equipment locally—the second large defence venture to be rebuffed in as many months.

The foreign investment promotion board (FIPB) took the decision on 20 November, the government said without giving a reason.

Seeking answers: A worker at L&T’s division in Mumbai. Santosh Verma / Bloomberg

The decision has come as a surprise, say analysts.

“The proposed joint venture was an important step towards the government objective of the indigenization of defence manufacturing," said Dhiraj Mathur, India leader for aerospace and defence at audit firm PricewaterhouseCoopers Pvt. Ltd.

India opened up defence equipment production to private sector companies in 2002 but restricts foreign investment to 26%.

EADS Deutschland GmbH, a unit of EADS defence and security, was to hold 24.5% equity in the venture. On 30 October, FIPB rejected a plan by Nova Integrated Systems Ltd, a joint venture of Tata Advanced Systems Ltd and Israel Aerospace Industries Ltd, to make missiles and other arms in India.