Share of private sector in defence production hits a multi-year high

Investments observed in key defence corridors in Uttar Pradesh, Tamil Nadu

Private sector companies accounted for a larger share of defence production in 2023-24 than has been seen in at least eight years.

Even as defence exports have reached record levels, an analysis of the Department of Defence Production data shows that private sector companies accounted for Rs 16,411 crore, or 22 per cent share in the total defence production of Rs 74,739 crore in 2023-24 (FY24). This is their largest share in data going back to 2016-17. The latest data is as of March 5.

The earliest data available on the Department of Defence Production website is from 2016.

This year’s private sector defence production was lower than the Rs 21,083 crore seen in 2022-23 (FY23). The share at the time was 19 per cent. The increased share in FY24 is because private sector defence production fell less than the overall numbers.

India’s defence production in FY24 was Rs 74,739 crore compared to Rs 1.09 trillion in the previous year. The other segments in defence production include the Ordnance Factory Board, defence public sector undertakings (PSUs), other PSUs, and joint ventures.

The government has been pushing for higher defence production locally.

For example, in November, Defence Minister Rajnath Singh said that the government has reserved Rs 1 trillion, or 75 per cent of the defence acquisition budget, for local companies. The defence offset policy is also expected to help in the development of the local industry.

The defence offset requires foreign companies to spend a portion of the money they get for large orders locally through investments in domestic firms or purchases from them. This can help the local industry to develop as well as promote the transfer of technology.

The total value of defence offset was $7.9 billion as of FY24. The total amount under defence offset nearly trebled from $2.9 billion in 2019-20.

The number of claims made by companies for offset yet to be processed, which they submit to the government for further review and disposal, has decreased from $790 million in March 2020 to roughly $310 million as of April 3.

These claims may be stuck because of either a need for additional information or because they were incomplete. The April figure shows a slight uptick compared to the $301 million recorded in January.

India’s defence exports touched a record high of Rs 21,083 crore in FY24, an increase from Rs 15,920 crore in FY23, the Ministry of Defence said.

The private sector is also investing in new defence production facilities. The Uttar Pradesh defence corridor has received Rs 25,397 crore in investment announcements, including small arms manufacturing in Kanpur, as well as a new facility at Noida for electro-optics.

Investments in the Tamil Nadu defence corridor worth Rs 11,821 crore include a facility for protective gears, photonics, thermal imaging, and aerospace components, as well as plans for radar facilities.