A decade of 'make in India' in defence

The launch of Make in India has proved to be a big catalyst for the defence industry reforms. A bouquet of reforms has been launched over the past 12 years, starting with the streamlining of the industrial licensing process, which had hindered the private sector’s entry into India’s defence production since the latter was first opened to private participation in 2001. The licensing reform was followed by the liberalisation of the foreign direct investment (FDI) regime, streamlining of the capital procurement manual, articulation of export promotion measures, corporatisation of ordnance factories, listing of the state-owned defence entities in the stock exchanges, announcement of two dedicated defence industrial corridors, opening of testing and trial facilities for use by the private sector, enunciation of positive  indigenisation lists, earmarking a dedicated budget for procurement from the domestic industry and many more.

The aforementioned reforms have had a net positive result on India’s defence industry, with a visible impact on production and exports. As table on the next page shows, India’s defence production has increased by 140 per cent in the last 10 years, from ₹74,054 crores in 2016-17 to ₹1.78 trillion in 2025-26, with the government setting a target of ₹1.9 trillion worth of production for 2026-27 and ₹3 trillion by 2029.

Behind the increasing numbers lies an ever-expanding domestic industrial and innovation ecosystem that supplies many items, ranging from small arms and ammunition to tanks, artillery guns, helicopters and aircraft, ships and submarines, and a wide array of electronics. These are not the items that many countries can boast of producing indigenously.

Significantly, a growing share of India’s defence production is being exported, indicating the global competitiveness of Indian arms manufacturers. As shown in the next table, India’s defence exports reached ₹38,424 crore in 2025-26, an increase of 63 per cent over the previous year. In the last 10 years, it has increased by a factor of 25. Notably, India’s exports are now reaching over 100 countries. Even more significantly, the export basket is increasingly dominated by complex, advanced weapons and other platforms. 

Armenia has emerged as a major export destination for Indian arms. Since 2020, it has signed arms deals worth about $2 billion, including for Swati weapons-locating radars, Akash surface-to-air missiles, Pinaka multi-barrel launchers, 155mm towed and wheeled artillery guns, loitering munitions and anti-drone systems. The Akash missile system has also been exported to Tajikistan and Turkmenistan, suggesting greater acceptance of its capabilities to neutralise aerial threats.

To its east, India has signed several high-profile arms deals, beginning with the Philippines. In 2022, it signed the first-ever export contract for the BrahMos supersonic cruise missiles, valued at $375 million. Further agreements to export the BrahMos have been signed with Vietnam and Indonesia. With Indonesia, India has also signed an agreement to export the Astra air-to-air missile, making the country the first foreign customer for the item, which is indigenously designed and produced with a high degree of indigenous content.

The increasing production has ensured that an ever-increasing procurement is made from the domestic industry. In the last 10 years, the share of domestic industry in the total capital procurement expenditure has increased from 63 per cent in 2015-16 to 88 per cent in 2024-25.

Beyond production and exports, the Make in India initiative has also succeeded in changing the mindset of Indian policymakers, who earlier found comfort working with state-owned entities — defence public sector undertakings (DPSUs), ordnance factories (OFs), and the Defence Research and Development Organisation (DRDO) — for innovation/production. Private companies, including micro, small and medium enterprises (MSMEs) and startups, are now increasingly favoured for manufacturing, and research and development.

As the two tables show, the private sector’s contribution to India’s defence production has increased over the years, accounting for about a quarter of the total in 2025-26. Notably, the private sector, despite its relatively small contribution to overall production, has an oversized influence on exports, suggesting greater agility among private enterprises in securing orders in the global market.

The rise of the private sector as a force in India’s defence industry can be attributed to several initiatives, taken both within the ambit of the Ministry of Defence’s (MoD) capital procurement manual and outside it. The defence procurement procedures (DPP) — renamed the defence acquisition procedures (DAP) with effect from 2020 — have been streamlined over the years to create a level playing field for the private sector. The creation of the Buy-Indian (Indigenously Designed, Developed and Manufactured), or Buy Indian (IDDM), and Buy and Make (Indian) procurement categories of the DAP have particularly been helpful for the private sector’s entry into big-ticket manufacturing such as the C-295 transport aircraft (by Tata) and K-9 Vajra (by L&T).

Outside the DAP, the government has also taken several bold decisions to involve private players in big-ticket defence manufacturing projects that were previously the exclusive preserve of state-owned manufacturers. The decision to involve private companies in developing the advanced medium combat aircraft (Amca) is probably the boldest yet taken by the MoD to break Hindustan Aeronautics Ltd’s (HAL) monopoly on fighter aircraft production.

Similarly, the MoD’s recent decision to allow the private sector to manufacture conventional missiles points in the same direction. The latter decision effectively ends the decades-long monopoly that the state-owned Bharat Dynamics Limited (BDL) had in missile manufacturing. Following this decision, the private sector can now aim to manufacture a range of missile systems developed by the DRDO.

The DRDO, on its part, has also taken certain key steps to promote the private players’ involvement in defence production. The introduction of the development-cum-production partner (DcPP) to onboard private companies at the start of the programme has been particularly useful, enabling them to enter the complex field of defence manufacturing. The DRDO has used this route to rope in private companies for the development of several systems, including the advanced towed artillery gun system (Tata and Bharat Forge), the Zorawar light tank (L&T), the Kusha missile system (Solar Group), and the unmanned aerial vehicle-launched precision guided missile (Adani). 

With active government support, the private sector has seized the opportunity with both hands. All the major Indian private houses are now involved in some degree of defence production, with several of them earning revenues exceeding thousands of crores a year. Their involvement in defence production has also gone hand in hand with an expanding industrial supply chain comprising micro, small and medium enterprises (MSMEs) and startups. As reported by the MoD, the Indian defence industry now boasts nearly 17,000 MSMEs and over 2,000 startups. Given its size and rising profile, the MoD hopes that the private sector’s contribution to defence production will reach 50 per cent of India’s defence production in the coming years.

Apart from production, the private sector, especially MSMEs and startups, has also emerged as a major force in defence innovation, a domain hitherto dominated by state-owned entities, especially the DRDO. The credit for the private sector’s involvement in innovation largely goes to the launch of two key Make in India initiatives: the Innovations for Defence Excellence (iDEX) and the Technology Development Fund (TDF). Between the two, iDEX, run by the Defence Innovation Organisation (DIO) of the Department of Defence Production (DDP), has been the greater success. Launched in 2018, it provides financial assistance (up to ₹1.5 crore per prototype development) to small innovators for rapid prototyping. Encouraged by the scheme’s initial success, the financial assistance has been enhanced to up to ₹25 crore per project under a modified ADITI scheme.

Under the iDEX, the MoD has engaged more than 710 innovators through 560 contracts till September 2026. As of March 2026, 58 successful prototypes have entered the procurement pipeline, with an estimated value of ₹3,853 crore.

Some of the solutions developed through the iDEX include a quantum key distribution system (QuNu Labs), autonomous weaponised boat swarm (Sagar Defence Engineering Private Limited), remotely piloted airborne vehicles (Zmotion Autonomous Systems Private Limited), anti-drone RF jammer guns (Gurutvaa Systems Private Limited) and AI-based satellite image analysis (CYRAN AI Solutions Private Limited).

Compared with iDEX, TDF, a scheme run by the DRDO, has been a laggard. Although it was launched two years before iDEX and has a provision to fund high-value development (up to ₹50 crore per project), only 88 projects have been awarded in the last 10 years. Nonetheless, it has been quite successful in developing 43 technologies, including several critical technologies that India previously imported. For instance, with TDF funding, Techno Defence Private Limited, a Mumbai-based startup, developed the Joule-Thomson Cooler, a critical component used for the optimal performance of a missile seeker. Before the Indian startup’s development, the technology was a monopoly held by a few countries. Some of the TDF-funded technologies have also been flown as part of India’s space programme, and some are exported to countries such as France, Israel and South Korea, indicating how small amounts of developmental assistance can generate vital, strategically important technologies.

Though Make in India has galvanised the Indian defence industry, the initiative is still far from transforming India into a truly global hub for manufacturing and innovation.

Despite the recent increase in domestic production, it still falls far short of meeting India’s total procurement needs. Table 3 amplifies this by estimating the gap between India’s total procurement (both revenue and capital) and India’s net defence production (total production minus exports). As can be seen, over the last five years, net defence production as a share of procurement has ranged from 58 per cent to 76 per cent, indicating that imports have accounted for 24 to 48 per cent of India’s procurement requirements by value. In absolute terms, the imports amounted to nearly ₹61,000 crore in 2025-26 alone. The staggering value of imports is a stark reminder of the distance the Make in India initiative has to cover going forward. This is where the initiative also faces its stiffest challenge, as going the distance would entail overcoming the critical gaps that persist in India’s production and innovation capabilities. India remains dependent on foreign sources for major platforms and weapon systems, especially advanced fighter aircraft, large transport aircraft, conventional submarines, and long-range air defence systems, which are currently imported.

Furthermore, India has not been able to develop an aeroengine capable of powering its fighter aircraft, even though it sanctioned the Kaveri engine development programme way back in 1989 and has spent more than ₹2,000 crore on it so far. There is also a void in domestic capability in critical materials and high-end electronics. India’s reliance on imports indicates a lack of domestic capacity to undertake major R&D programmes. DRDO, the premier defence agency, has been plagued by inadequate resources and a lack of institutional reforms, which have hindered its programmes and performance. Even though the organisation has been functioning since 1958, its budget has hardly been commensurate with the level of technological development expected of it. Its latest budget constitutes a mere four per cent of the MoD’s total budget. To put this in comparative perspective, the DRDO’s total budget of $3 billion (in 2026-27) pales in comparison to about $140 billion that the US Department of Defence spends on defence R&D. With such a meagre budget, there is a limit to what the DRDO can take up for development.

Even the meagre budget that DRDO receives is scattered across a vast number of programmes, estimated at 300, for which it does not have enough skilled manpower. Of its total manpower of about 20,000 employees, less than 7,000 are scientists and engineers. Such a small pool of skilled human resources can hardly be expected to undertake major R&D programmes of the kind that India is import dependent on.

To compound its financial and human resource problems, the organisation suffers from a host of inefficiencies due to lack of timely reforms. Crucial reforms as suggested by various committees over the years have not been implemented. The Modi government, on its part, has sought to revamp the organisation by establishing a high-level review committee chaired by Professor Vijay Raghavan, the former principal scientific advisor to the Government of India. However, as with many past committees, the crucial recommendations of the Raghavan Committee have hardly been implemented in the true letter and spirit.

Adding to the problem of the meagre budget for the DRDO, the defence industry (both public and private) hardly spends anything on research and development (R&D). Among the DPSUs, except for HAL and Bharat Electronics Limited, others have a miserly attitude towards R&D. The Make in India in the last 12 years has not been able to persuade them to change their approach.

The lack of R&D by the DPSUs, which remain the mainstay of India’s defence production, has resulted in a piquant situation: they are not only dependent on external sources for technology acquisition but also on key input materials for production, for which they spend a substantial amount year after year. HAL, the largest defence company in India, is a testament to India’s dependence on external inputs. The aerospace behemoth, despite its decades of operation, continues to import various input materials, which account for over 70 per cent of its annual consumption.

The Indian private sector, given its relatively recent entry into the defence sector, remains a marginal player in innovation, though it is steadily ramping up R&D investment. In 2023-24, the private defence industry’s total R&D expenditure amounted to 5.8 per cent of its total sales turnover, up from 4.7 per cent in the previous year. In absolute terms, however, its total R&D spending was a mere ₹868 crore. In comparison, private drugs and pharmaceutical companies spent over ₹25,000 crore on R&D. The Indian defence industry’s lack of investment in R&D also partly reflects the slow progress of Make in India in incentivising investment in innovation. In the Union Budget 2022-23, the finance minister announced an allocation of 25 per cent of the R&D budget for industry- and academia-led innovation. 

However, more than four years down the line, it remains unclear how the funding will be made available to industry, and whether the MoD has the wherewithal to implement it in a time-bound manner. It is noteworthy that following the FM’s budget announcement, the MoD identified 18 projects for execution under different models. Of the 18 projects, 14 were earmarked for execution under the Make-I procedure, under which the government funds up to 70 per cent of prototype development, subject to a maximum funding of ₹250 crore per development agency. However, the complexities of the procedure have meant that only a few have been awarded, and none have reached the procurement stage.

The iDEX and TDF might have been successful in democratising India’s defence innovation. However, their success is, at best, marginal, as complex and strategic innovation is still the domain of the DRDO, which, as mentioned earlier, has its own issues to deal with. Funding under the iDEX and TDF is minuscule to say the least; annual spend on both the initiatives is less than ₹250 crore a year, in comparison to DRDO’s ₹29,100 crore budget for 2026-27 alone.

Even the innovation potential of a meagre budget is not fully realised due to the lack of an efficient mechanism to shortlist innovators in a time-bound manner. This is particularly true for TDF, which has awarded only 18 projects in three years ending 2025.

The Make in India initiative has undoubtedly been a major catalyst for the Indian defence industry. Reforms announced since 2014 under the initiative have had a positive impact, as evidenced by rising defence production and arms exports. The most significant impact has been on the private sector, which has now emerged as a force to be reckoned with. Schemes such as iDEX have democratised defence innovation and taken R&D beyond DRDO.

Despite its positive impact, the Make in India initiative has some distance to cover before realising its objective of transforming India into a major hub for innovation and production. A lack of depth in R&D has resulted in India’s continued dependence on imports for major platforms. It has also constrained India’s ability to field its own engine to power its fighter fleet and to use homegrown critical input materials for deeper indigenisation. These deficiencies need to be plugged for India to emerge as truly atmanirbhar in defence manufacturing.