Defence
This article explores the two-sided trajectory of India’s defence evolution, showcasing the remarkable rise in indigenous production while critically assessing the persistent technological gaps and fiscal constraints that continue to impede its progress.
Reimagining India’s Defence Sector: Growth, Gaps, and the Road Ahead
India’s defence sector is increasingly emerging as a crucial pillar of both national security and economic strength. In recent years, the country has made notable strides, particularly in boosting domestic manufacturing and expanding its presence in the global arms market. Defence exports have recorded an impressive growth of over 60% in FY 2025–26, largely driven by Defence Public Sector Undertakings (DPSUs). India now exports defence equipment to more than 80 countries, reflecting its growing integration into global supply chains. At a time when geopolitical tensions are disrupting traditional supply routes and increasing global defence spending, India is positioning itself as a reliable and cost-effective supplier of military hardware. However, sustaining this momentum will require a strategic shift toward a more innovation-driven and private sector-led ecosystem rather than relying primarily on state-led production and temporary geopolitical opportunities.
Key Drivers of Transformation in India’s Defence Sector
Expansion of Defence Exports and Strategic Diplomacy
One of the most significant drivers of transformation is the rapid expansion of India’s defence export ecosystem. The country is transitioning from being a net importer to an emerging exporter of defence equipment, thereby strengthening its strategic footprint globally. In FY 2025–26, defence exports reached a record ₹38,424 crore, reflecting a remarkable growth of 62.66% compared to the previous year. Indigenous systems such as the BrahMos missile and Pinaka rocket launchers are now being exported, showcasing India’s growing technological capability. This shift is not only enhancing economic gains but also reinforcing India’s defence diplomacy by offering affordable alternatives to traditional Western suppliers.
Capital Budget Indigenisation and Policy Push
Another major factor is the government’s focus on indigenisation through targeted budgetary policies. By reserving a significant share of capital expenditure for domestic procurement, India has reduced its reliance on imports while simultaneously boosting local industries. The defence budget has increased substantially from ₹2.53 lakh crore in 2013–14 to ₹7.85 lakh crore in 2026–27. Out of this, ₹1.39 lakh crore has been earmarked exclusively for domestic procurement, with nearly 75% of the capital acquisition budget reserved for indigenous systems. This consistent financial commitment ensures long-term stability for domestic manufacturers and reduces vulnerability to global supply chain disruptions.
Strengthening of the Manufacturing Ecosystem
India’s defence manufacturing base has undergone a structural transformation, moving from a state-dominated model to a more collaborative public-private ecosystem. This shift has enabled the development of economies of scale and improved efficiency in production. Indigenous defence production reached a record ₹1.51 lakh crore in FY 2024–25. While DPSUs continue to play a leading role, the private sector’s contribution has grown significantly, reaching around 23%. The introduction of the fifth Positive Indigenisation List, which includes 346 critical items, further strengthens domestic manufacturing capabilities and reduces dependence on imports.
Rise of Startups and Innovation through iDEX
Innovation is playing an increasingly important role in shaping India’s defence sector. The government’s iDEX (Innovations for Defence Excellence) initiative has brought startups and MSMEs into the defence innovation ecosystem. As of early 2025, over 600 startups have been engaged, resulting in more than 430 contracts. These startups are contributing to the development of advanced technologies such as artificial intelligence, drone systems, and autonomous platforms. This decentralized approach to research and development is helping India overcome technology denial regimes and accelerate innovation cycles.
Private Sector Participation in Aerospace Manufacturing
The entry of private players into aerospace manufacturing marks a major shift in India’s defence landscape. Projects like the C295 aircraft programme, led by Tata Advanced Systems, represent a milestone in the “Make in India” initiative. With over 85% indigenous production and a vast network of domestic suppliers, this project is expected to significantly enhance India’s aerospace capabilities. It also demonstrates how private sector participation can drive efficiency, innovation, and global competitiveness.
Democratization of Defence R&D
The expansion of research and development beyond traditional government institutions has further strengthened the sector. The allocation for DRDO has increased to ₹29,100.25 crore in FY 2026–27, and importantly, 25% of the defence R&D budget has been opened to private industry, startups, and academia. This shift is crucial for fostering innovation and building indigenous intellectual property, which is essential for long-term technological self-reliance.
Challenges Limiting the Growth of India’s Defence Sector
Dependence on Critical Imports
Despite progress in indigenisation, India continues to depend on foreign suppliers for critical components such as engines and advanced avionics. For instance, the LCA Tejas relies on imported engines, highlighting the gaps in domestic technological capabilities. This dependency exposes the sector to geopolitical risks and supply chain disruptions.
Inadequate R&D Investment
India’s investment in research and development remains relatively low at around 0.64% of GDP, which is significantly below that of leading innovation-driven economies. This limits the country’s ability to develop cutting-edge defence technologies and keeps it reliant on foreign expertise.
Skewed Budget Structure
A large portion of the defence budget is allocated to revenue expenditure, including salaries and pensions, leaving limited resources for capital investment and modernization. This restricts the pace at which advanced systems can be developed and inducted into the armed forces.
Delays in Procurement Processes
Bureaucratic inefficiencies and lengthy procurement procedures continue to hinder progress. Delays in decision-making and prolonged trials often result in cost escalations and the acquisition of outdated technologies.
Limited Role of the Private Sector
Although policy reforms have encouraged private sector participation, public sector dominance still persists. The private sector’s share in defence production remains relatively low, which limits competition and innovation.
Skill and Technology Gaps
India faces a shortage of highly skilled professionals in advanced fields such as aerospace engineering, metallurgy, and propulsion systems. This gap restricts the development of complex technologies and necessitates foreign collaborations.
Lack of Long-Term Strategic Alignment
There is often a disconnect between long-term military planning and annual budget allocations. This inconsistency disrupts large-scale projects that require sustained funding and long-term commitment.
Measures Needed to Strengthen the Defence Sector
Integrated Long-Term Strategy
Aligning defence planning with a comprehensive industrial roadmap will provide clarity and predictability to private players, encouraging investment and capacity building.
Boosting R&D and Innovation
Establishing advanced research agencies and promoting collaboration between industry, academia, and startups can accelerate technological development and innovation.
Mission-Mode Projects for Critical Technologies
Focused initiatives to develop key technologies such as jet engines and advanced materials are essential for achieving true self-reliance.
Financial Support for Defence Exports
Creating dedicated financial institutions to support defence exports can enhance India’s competitiveness in global markets.
Strengthening Human Capital
Developing a skilled workforce through education, training, and industry collaboration will be critical for sustaining long-term growth.
Ensuring Resource Security
Securing access to critical raw materials and building strategic reserves will reduce dependence on external sources.
Promoting Dual-Use Technologies
Encouraging the commercialization of defence technologies for civilian applications can create additional revenue streams and improve sustainability.
Streamlining Testing and Certification
Decentralizing testing infrastructure and simplifying certification processes will reduce delays and accelerate innovation.
Conclusion
India’s defence sector has made significant progress in recent years, moving beyond intent to demonstrate tangible results in terms of exports, production, and innovation. However, challenges related to technology gaps, budget constraints, and structural inefficiencies continue to limit its full potential. To truly transform into a global defence powerhouse, India must focus on strengthening its innovation ecosystem, enhancing private sector participation, and achieving technological self-reliance. With the right policy framework and sustained investment, the country can transition from being a manufacturing hub to a global leader in defence technology and strategic capability.
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