Defence Manufacturing in India — Initiatives, Prospects, Challenges (UPSC)

India has historically been among the top two arms importers globally — accounting for around 9–12 per cent of global arms imports (SIPRI). This dependence is both a strategic vulnerability and an industrial opportunity missed. The last decade has seen an aggressive pivot toward indigenisation under Aatma Nirbhar Bharat, with measurable results on production, exports and private sector participation. For UPSC GS-III, defence manufacturing sits at the intersection of industry policy, internal security and strategic autonomy.

Why defence indigenisation matters

• Strategic autonomy. Dependence on foreign vendors creates leverage during hostilities, sanctions, or shifting geopolitics.
• Manufacturing ecosystem. Defence demands high-precision engineering, metallurgy, electronics — spillovers that lift the industrial base.
• Foreign exchange. Import substitution directly reduces the current account deficit.
• Employment. Defence has long supply chains; high-value jobs in R&D, design, assembly, maintenance.
• Exports. A strong domestic base enables defence exports and strategic partnerships with friendly nations.

Defence Production and Export Promotion Policy (DPEPP) 2020

The DPEPP 2020 set ambitious targets:

• Turnover of Rs 1,75,000 crore (about $25 billion) including exports of Rs 35,000 crore ($5 billion) in Aerospace and Defence by 2025.
• Reduce dependence on imports and take forward “Make in India” through domestic design and development.
• Promote exports and integrate into global defence value chains.

Key initiatives

Buy Indian — IDDM

A new top category in the Defence Acquisition Procedure (DAP) 2020: Buy Indian – Indigenously Designed, Developed and Manufactured (IDDM) gets top priority in capital procurement. Minimum indigenous content thresholds — 50 per cent for procurement under this category.

Defence Offset Policy

Obliges foreign vendors to source a portion of contract value from Indian defence firms through subcontracting, technology transfer or investment. CAG has repeatedly flagged non-compliance, which DAP 2020 partially corrected.

Import embargoes — "positive indigenisation lists"

Five positive lists totalling over 500 items have been released since 2020, imposing phased import bans on specific weapons systems, sub-systems and components. Fourth list in October 2023 included major platforms like light-combat helicopters and future infantry combat vehicles.

iDEX — Innovations for Defence Excellence

Flagship platform for defence startups, MSMEs and individual innovators. Connects them with armed forces requirements via challenges (DISC rounds) and co-funded pilots. Over 450 MSMEs and startups engaged.

Strategic Partnership Model (2017)

Allows selected Indian companies to partner with global OEMs for manufacturing in four segments — fighter aircraft, helicopters, submarines, armoured vehicles. The P-75I submarine programme is the marquee case.

Policy for indigenisation of components (2019)

Targets components and sub-assemblies currently imported, mandating phased domestic sourcing.

Defence industrial corridors

Two corridors established in 2018 — Uttar Pradesh Defence Industrial Corridor (six nodes including Aligarh, Agra, Kanpur, Lucknow, Chitrakoot, Jhansi) and Tamil Nadu Defence Industrial Corridor (Chennai, Coimbatore, Hosur, Salem, Tiruchirapalli). Aggregate investments crossed Rs 8,000 crore by FY25.

Corporatisation of Ordnance Factory Board (2021)

The OFB was dissolved into seven defence PSUs — Munitions India, Armoured Vehicles Nigam, Advanced Weapons and Equipment India, Troop Comforts, Yantra India, India Optel, Gliders India. This addressed structural inefficiency, lack of autonomy, and cross-subsidy issues.

Public Procurement Order

Around 24 items notified where domestic capacity and competition exist — all procurement must come from local suppliers regardless of order value.

FDI liberalisation

Up to 74 per cent under automatic route (August 2020); beyond that, government route. Enables technology transfer via joint ventures.

Constraints and challenges

Legacy of PSU dominance

Defence PSUs (HAL, BEL, BEML, MDL, GSL, GRSE, Ordnance Factory successors, BDL) have historically captured the bulk of procurement. Private sector share has grown but remains skewed in value terms.

Procurement delays

Long capital procurement cycles — it can take 8–12 years from requirement to delivery — frustrate industry planning and raise costs.

Offset policy under-performance

CAG audits have found that foreign vendors commit to offsets to win tenders but fail to deliver on indigenisation.

Low R&D investment

India's aggregate R&D spend is around 0.7 per cent of GDP; defence R&D as a share is still dominated by DRDO rather than private industry, limiting commercial orientation.

FDI inflows below expectations

Despite the 74 per cent automatic route, FDI inflows into defence have been modest — partly because of procurement unpredictability and dominance of PSUs.

Ease of doing business

Licensing, export controls, security clearances and procurement procedures remain complex for private players.

Latest developments (2024-26)

• Defence production. Crossed Rs 1.27 lakh crore in FY24, up from Rs 74,054 crore in FY19.
• Defence exports. Record Rs 21,083 crore in FY24 — 31 times FY14 levels. Export to over 80 countries including the US, France, Italy, Armenia, Philippines (BrahMos), Mauritius, Sri Lanka.
• Capital procurement from Indian vendors. Share hit around 75 per cent of MoD capital procurement in FY24.
• BrahMos Philippines contract of $375 million fully delivered.
• INS Vikrant, Tejas Mk-1A, K9 Vajra, Pinaka, Arjun Mk-1A, ATAGS and multiple drone platforms — flagship IDDM outcomes.
• Defence corridors. UP and TN corridors have seen cumulative investment commitments above Rs 25,000 crore by FY25.
• iDEX Prime. Scaled higher-value pilots (Rs 10 crore per idea up from Rs 1.5 crore); AMCA Tejas Mk2 engine co-development talks with Safran.
• Defence shipbuilding. P-75I submarine contract progress; third aircraft carrier IAC-2 feasibility in advanced discussion.
• Budget 2025-26. Defence capital outlay around Rs 1.8 lakh crore; earmarked share for domestic procurement retained above 75 per cent.
• Positive indigenisation list 5 in 2024 expanded the scope to strategic systems.
• Drone ecosystem. India crossed 300 drone startups by 2025 under iDEX and drone PLI.

Strategies to deepen defence manufacturing

• Project Management Unit (PMU) providing industry with rolling visibility of future armed-forces requirements, helping investment planning and capacity building.
• Regular review and expansion of positive indigenisation lists.
• Move from licensed production to IDDM — India must own design rights and IP rather than simply license from OEMs.
• Streamlined trials and testing. Time overruns in user trials discourage industry; parallel trials and standards would help.
• Indigenisation portal backing MSMEs and startups with technical and procurement support (Srijan portal operational).
• Distinct budget head for domestic capital procurement to ring-fence allocation.
• Aerospace services opportunities — MRO, UAVs, loitering munitions — where India can become a regional hub.
• R&D scale up — convert DRDO prototypes into commercial products faster; expand DRDO industry partnerships and iDEX funding.
• Export promotion through government-to-government Lines of Credit, defence attaché offices, and bundled financing with equipment.

UPSC Relevance

For GS-III (internal security; industrial policy) and GS-II (government policies; international relations):

• Policy: DPEPP 2020, DAP 2020, positive indigenisation lists, iDEX, SP Model.
• Institutional: OFB corporatisation, Defence Industrial Corridors, IFSCA-linked defence finance.
• Strategic: import dependence, GVC integration, BrahMos exports, China Plus One.
• Critical: PSU dominance, procurement delays, offset non-compliance, R&D gap.

A high-scoring mains answer pairs the DPEPP 2020 targets with FY24 achievements, illustrates with BrahMos and Tejas, and ends with pending reforms (Project Management Unit, IDDM at scale, export financing).

Conclusion

India's defence manufacturing trajectory has inflected — from near-complete import dependence to a credible export success, anchored by Aatma Nirbhar Bharat policy and a structural opening to the private sector. The next five years will determine whether India can step up from assembly and licensed production to owning IP at scale. That requires persistent R&D investment, smoother procurement and genuine export financing architecture — not just aspirational targets.

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