"Raising the foreign direct investment (FDI) limit in the defence sector to 49 per cent will enable India to acquire self-reliance in defence production and allow foreign firms a larger share of risks and profits," Assocham Secretary General D S Rawat said.
Also, it will give confidence to transfer sensitive technologies to joint ventures in India, he added.
Besides, the chamber asked the government to support setting up of Special Economic Zones (SEZs) for the defence sector, aimed at expanding manufacturing activities in the country thus boosting the exports.
"Incentives may also be given to establishments in such SEZs to boost exports to the neighbouring countries," it said in a suggestion made to the working group on defence and aerospace industry, under the Planning Commission, for the 12th Five-Year Plan (2012-17).
Further, it said, the government may consider an option of providing 25 to 30 per cent reservation to SMEs in defence orders, under the proposed Micro, Small and Medium Enterprises Procurement Policy.
To increase focus on research and development (R&D) in the sector, Assocham said, "A dedicated fund of Rs 400 crore should be created to support R&D by the private sector."