Foreign Direct Investment (FDI) refers to the investment made by a foreign company or individual in the business ventures of a host country. FDI plays a crucial role in the economic development of a country as it brings in capital, technology, and expertise. In the defense sector, FDI can help in modernizing the industry, enhancing the capabilities of the armed forces, and creating employment opportunities.

The correct answer to the question is option 'A' - 26%. Currently, the Indian government allows FDI up to 26% in the defense sector. This means that a foreign company or individual can invest up to 26% of the total capital in a defense-related business in India.

Below is a detailed explanation of the FDI policy in the defense sector:

1. Background:
- Historically, India had restrictions on FDI in the defense sector due to security concerns.
- In 2001, the government allowed FDI up to 26% in the defense sector.
- Over the years, the government has made efforts to attract more FDI in defense by easing the FDI policy.

2. FDI Policy:
- As of now, FDI up to 26% is allowed through the automatic route, which means no prior government approval is required.
- FDI beyond 26% and up to 49% is allowed through the government approval route.
- FDI beyond 49% is allowed on a case-by-case basis, with government approval and compliance with certain conditions.

3. Initiatives to Attract FDI:
- The government has taken several steps to encourage FDI in the defense sector.
- The "Make in India" initiative aims to boost domestic manufacturing, including in defense production, by attracting foreign investments.
- The government has relaxed licensing requirements and implemented a single-window clearance system to facilitate the entry of foreign companies.
- Various defense procurement reforms have been introduced to encourage indigenous manufacturing and reduce dependency on imports.

4. Importance of FDI in Defense:
- FDI in defense can lead to the transfer of advanced technology and know-how, which can enhance the capabilities of the Indian defense industry.
- It can promote the development of a robust defense manufacturing ecosystem and create job opportunities.
- FDI can also help in reducing the country's defense import bill and making India self-reliant in defense production.

In conclusion, the current FDI limit in the defense sector in India is 26%. The government has taken several measures to attract FDI in defense, and FDI plays a crucial role in modernizing the industry, enhancing capabilities, and promoting indigenous manufacturing.