New Delhi is solidifying its position as a global manufacturing hub for defense by utilizing the expertise of state-run majors and engaging private firms
Atmanirbharta (self-reliance) in defense is the flavor of the season in India. The country’s defense manufacturing sector is rapidly emerging as a cornerstone of New Delhi’s strategic and economic ambitions, and government policies are focusing on making sure that modern weaponry is both designed and manufactured in India, or, at the very least, is “Made-in-India.”
The Indian military has identified over 5,000 items that must be manufactured in the country rather than imported. Called the positive indigenization list (PIL), the initiative began in 2020 and aims to offer defense items to be indigenized by Indian manufacturers, including small and medium enterprises and startups. It has already yielded results, according to the Defense Ministry.
Defense production and exports are being monitored at the highest levels of the executive. Ambitious targets are being set: 75% of the defense capital budget has to be spent procuring India-made products. The private sector is being encouraged to enter defense production, which was hitherto public-dominated. Some big industrial groups have entered defense, but there are also large numbers of Micro, Small & Medium Enterprises (MSMEs) and start-ups that are producing international quality components and subsystems to global manufacturers.
Historic shifts
It was different for the newly independent India. In the early 1950s, the country’s economy was greatly influenced by the Soviet “socialist” approach, and evolved its five-year plans. Perhaps that was the best for those times.
Throughout the 1950s, there was Soviet assistance and technology transfer in multiple industrial sectors such as steel, defense, railways, construction equipment, metal, mining, petrochemicals, and much more to India. A very important part was the building of military aircraft, aero-engines and avionics factories. At one point the Indian armed forces had nearly 85% of military equipment of Soviet or Russian origin.
Back then, India’s private sector was relatively small and primarily focused on meeting the daily needs of the masses. The government utilized public funding to establish essential infrastructure, nationalizing key industries such as banking, car manufacturing, and aircraft production. This approach may have been suitable for that time.
Over the long term, both public and private sectors exhibited distinct strengths and weaknesses. The public sector benefits from government funding but operates under the bureaucratic control of government departments. Decision-making can be complex, and progress monitoring is similarly cumbersome. With taxpayers’ money at stake, accountability tends to be lower. Salaries are fixed according to government scales, and once hired, employees find it difficult to be dismissed for poor performance, resulting in generally lower productivity compared to the private sector.
After the collapse of Soviet Union, Russia realized the need to compete with the rest of the world through market forces. India too realized that it had to diversify its defense sourcing.
After the economic reforms of 1991 that deregulated markets, reduced import tariffs, and lowered taxes, India’s economy began to grow. This growth enabled significant investment in the defense sector and marked the emergence of a robust private sector. Manufacturing capabilities expanded, resulting in the mass production of cars and motorcycles. Additionally, the previously protected defense sector began to open up to private players.
The private sector attracts top talent with competitive salaries and can quickly dismiss non-performers. Its efficiency allows tasks to be completed with fewer workers, and it can easily raise funds from banks and international institutions. Unlike the public sector, which faces complex governmental approvals for joint ventures and foreign collaborations, the private sector can pursue these opportunities swiftly. Foreign corporations prefer working directly with Indian companies to avoid bureaucratic hurdles. Additionally, the private sector can acquire essential technologies and raw materials based on commercial needs, improving operational agility.
Interestingly, 41 of the top global defense companies are from the US. All are private. These companies had $317 billion in arms revenues, which was half of the total revenue of the top 100 companies. The top five arms companies were all US-based. Nine Chinese, three Indian, and two Russian companies are in the top 100. All these were public sector companies.
India’s initiatives
New Delhi has launched a host of programs and policies in the past few years to attract private companies to participate in defense manufacturing.
This includes Innovation for Defense Excellence (iDEX), which aims to spark innovation in defense and aerospace by creating prototypes that enhance national security; and the Defense India Startup Challenge, which supports startups and small and medium companies in building prototypes and commercializing solutions for national defense. Additionally, the 2020 Defense Acquisition Procedure reserves certain orders (worth of up to 1 billion rupees or $11.5 million) for small and medium sector companies.
The Defense Ministry has also encouraged industry bodies to create dedicated defense chapters and help connect the industry with the government and address concerns. Lastly, the government is pushing public sector banks to develop loan schemes tailored for the defense industry, with the Small Industries Development Bank of India (SIDBI) already offering specific options.
The government has also insisted that state-run companies and agencies in defense, including the largest one, the Defense Research and Development Organization (DRDO), which was created in the late 1950s to support defense equipment research, should offer support to the private sector by providing their facilities.
Setting up an independent nodal umbrella body for testing, trial, and certification requirements of defense systems should improve access to existing facilities while reducing the need for investments to recreate the capital-intensive infrastructure.
Currently, India has 16 Defense Public Sector Units (DPSUs), over 430 licensed companies, and approximately 16,000 MSMEs. Notably, 21% of this production comes from the private sector, bolstering India’s journey toward defense self-reliance.
There has long been a feeling that state-owned defense companies are keeping their technology R&D cards very close to their chest and are reluctant to share with private sector. They also continue to treat them as competitors rather than partners. Meanwhile, the government has offered increased governance and control rights to foreign companies.
While major foreign defense manufacturers have chosen to partner with major Indian conglomerates like Tata, Reliance, Adani, L&T, and others to invest in defense in India, similar projects with the public sector have been few.
The Indian government’s defense procurement policies have lured several global players, such as Airbus, BAE, Boeing, Collins Aerospace, Dassault Aviation, Israel Aerospace Industries (IAI), Pilatus, Lockheed Martin, Raytheon, Rafael, Safran, and Thales, to set up operations and form joint ventures in India.
For instance, Lockheed Martin and Boeing joined with Tata group manufacturing aero-structures and sub-systems for global supplies, while Adani group is making UAVs and drones with Israeli’s Elbit group.
The Airbus C295 is built by Tata group in India. This first-of-its-kind ‘Make in India’ aerospace program in the private sector is expected to involve more than two dozen small and medium-sized suppliers, producing over 60% of the 30,000 detail parts, sub-assemblies, and component assemblies locally.
The Defense Ministry issued an expression of interest (EoI) to the private sector to participate in the Advanced Medium Combat Aircraft (AMCA) program through a special-purpose vehicle. The project will include ADA, HAL and a selected private company under the PPP model. The name is expected to be announced by mid-2025.
There are many private companies making defense electronics, large aero-structures components, advanced technology components, and sub-systems. Dynamatic Technologies makes assemblies of vertical fins for Sukhoi 30 MKI fighters. They are also supplying aero-structures to Airbus for its A320 family of aircraft and the wide-body 330 aircraft. Hyderabad’s VEM Technologies manufactures centet fuselage for LCA Tejas.
The BrahMos is JV is a joint venture between the DRDO and Russian NPO Mashinostroyeniya, which together have formed BrahMos Aerospace and have had significant success in missile production and exports. The AK-203 assault rifle is being produced in India through a joint venture between Russia and India. Russia has recently offered to make the fifth-generation Sukhoi Su-57 in India through a JV with Indian partners. Interestingly, the Russian Army wears boots crafted in India’s Hajipur district in Bihar.
Ambitious targets
Overall, India’s aerospace and defense sector has witnessed remarkable growth in recent years, with the private sector contributing a staggering 20% to its turnover. Developing a strong research base in India and a robust supply chain for components and sub-systems, most currently sourced from abroad, will help create the market for civilian and defense systems in the aerospace sector.
Domestic defense production in India has already reached $14.5 billion in the 2023-24 financial year. The target to procure 75% of all defense capital acquisitions domestically will give a huge boost to the “Make-in-India” initiative. The target is $19 billion in the current fiscal year with aspirations to achieve $34 billion in defense production by 2029.
Meanwhile, India’s defense exports reached $2.4 billion last year, and the government set a defense export target of $5.7 billion by 2028-29. Currently, India exports to over 100 nations, with the top three destinations for defense exports in 2023-24 being the USA, France, and Armenia.
To move beyond traditional defense manufacturing, India needs to boost public funding for investments in key future technologies like artificial intelligence (AI), robotics, autonomous vehicles, hypersonic technology, directed energy weapons, augmented and virtual reality, and blockchain. These investments will lay the groundwork for future innovations in both commercial and military applications. Developing intellectual property is vital for India to secure a prominent place in global defense manufacturing.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.
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