India continues to make significant strides towards self-reliance in defence sector, marked most recently by the inauguration of the Tata-Airbus Final Assembly Line in Vadodara. India’s first private military aircraft production facility, built in a 50-acre site, will create 3,000 direct jobs and numerous indirect employment opportunities. The facility will manufacture the C295 medium-lift tactical transport aircraft with over 85% of components produced in India.
In recent years, the military ecosystem has undergone a transformation across several key areas. As it seeks to become a defence powerhouse, India has set ambitious targets to increase its military capabilities. In June, the government pledged to more than double India’s annual military exports to Rs 50,000 crore by 2028-29.
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The defence sector is already experiencing notable growth due to increased military budgets, key institutional and policy changes, and a heightened focus on indigenising equipment. This focus has fuelled both domestic capital procurement and defence exports, signalling a promising future for companies within the sector. Reflecting this potential, financial advisory firm Motilal Oswal recently launched India’s first index fund offering exposure to listed defence stocks.
Focus on self-reliance in defence
India has been promoting the indigenisation of its military sector, recognising self-reliance as essential for both strategic and economic reasons. Strengthening security infrastructure is vital to India’s geopolitical aspirations and to counter hostile actions by neighbouring countries. In an era marked by uncertainty, the goals of Atmanirbhar Bharat and Make in India seek to mitigate risks associated with disruptions or manipulation in critical supply chains— a lesson underscored by Ukraine’s constraints in its conflict with Russia.
According to a report by the Stockholm International Peace Research Institute (SIPRI), India was the second-largest importer of major arms globally between 2014 and 2018, accounting for 9.5% of global arms imports. India’s military expenditure also increased by 3.1% during this period. Despite an 11% reduction in arms imports between 2013-17 and 2018-22, India remains one of the world’s largest arms importers, due to complex procurement processes and diversification efforts.
In its drive for self-reliance, India set a roadmap with the Defence Acquisition Procedure (DAP) 2020 which mandates 50% indigenous content in procurement contracts. A new procurement category, ‘Buy (Global – Manufacture in India),’ was also introduced to encourage foreign OEMs to establish manufacturing and maintenance facilities domestically. The ministry of defence unveiled several positive indigenisation lists, specifying items that must be sourced exclusively from domestic suppliers. These lists cover nearly 5,000 items currently imported by public sector units and the armed services. Launched in August 2020, the Srijan Indigenisation Portal now lists over 34,000 imported items, about a third of which are being indigenised.
Although the Defence Research and Development Organisation has made significant advancements in missile technology, the Atmanirbhar Bharat initiative has expanded the scope of military indigenisation. By the end of 2022, the positive indigenisation list led to the removal of 3,700 items from the import list, further promoting domestic sourcing.
India has also made strides towards self-reliance in military technology through public-private partnerships and international collaborations. The government has encouraged partnerships between foreign defence firms and Indian companies to bridge technology gaps and facilitate knowledge transfer. Recent agreements with global armed forces giants aim to provide advanced technical expertise, from aerospace to cybersecurity. This collaborative approach not only accelerates India’s capability-building but also makes Indian firms more competitive on the global stage. Government schemes like Innovations for Defence Excellence (iDEX) are fostering a culture of innovation, encouraging startups and SMEs to contribute solutions that address India’s unique military needs.
India is also investing in the digitalisation of its defence sector through advancements in artificial intelligence (AI) and cybersecurity. The development of AI-driven surveillance systems, autonomous drones, and smart weapons is gaining traction as the country seeks to modernise its defence infrastructure. The ministry of defence has established various AI research centres and collaborates with tech firms to integrate machine learning and AI technologies into critical military functions. These digital transformations aim to enhance the precision and efficiency of India’s defence operations while enabling quicker responses to emerging threats.
Challenges to indigenisation
India’s long-term challenge lies in securing sustained and substantial investments in defence R&D. The country also needs to cultivate a defence industrial ecosystem that can comprehensively serve the Indian military’s requirements.
While progress has been made towards achieving self-reliance in defence sector, challenges remain in meeting the qualitative standards of the armed forces. Often, defence manufacturers only become aware of the stringent specifications once a tender for a specific system or item is issued, making it difficult for them to meet these standards.
In the past, several acquisition efforts to source from indigenous vendors have been unsuccessful. To address these issues, the government must overcome limitations within India’s domestic industry, which requires a combination of governmental investment, regulatory standards, academic involvement, and increased contributions from Indian industry leaders to meet the armed forces’ needs.
Globally, defence companies have benefited from ongoing conflicts, and even if current tensions do not escalate, the world appears to be entering an era of increased geopolitical tension. India’s defence industry needs to demonstrate its preparedness for a potentially volatile future, for the country to be truly capable of defending itself.