India's 'challenge lies in execution' in defence sector: Morgan Stanley

A Morgan Stanley defence report says the self-reliance policy is clear but procurement remains bureaucratic, technology gaps persist

India, which is not yet a defence export power like South Korea, has a large domestic market and a clear policy preference for localisation. But India’s challenge lies in execution, according to a Morgan Stanley report released in November.

 

Authored by the emerging markets equity team at the US-based investment bank and financial services company, the defence report said that procurement remains bureaucratic, technology gaps persist and the industrial ecosystem is still developing. “India’s opportunities are likely to be selective rather than broad.”

 

The more investable areas are expected to be electronics, radars, sensors, missiles and ammunition, where domestic suppliers can participate in import substitution, it added.

 

 

India is the second-largest defence importer after Ukraine, data from the Stockholm International Peace Research Institute (SIPRI) show. And while India relies on Russia, France, Israel and other countries for some advanced systems, Defence Secretary Rajesh Kumar Singh confirmed at a recent seminar that India has become a top exporter of defence goods such as artillery and mortar shells to some 13 countries in eastern and central Europe since the Russian invasion of Ukraine in 2022.

 

Decades of lean procurement left the West with defence industries designed for peacetime, unprepared for sustained conflict. Modern warfare consumes shells, interceptors, drones and spare parts faster than those industries were built to supply. Industrial capacity now constrains defence as much as budgets do, the Morgan Stanley report said.

 

Global military spending reached a record $2.9 trillion in 2025. That year, the North Atlantic Treaty Organisation’s (Nato’s) European members and Canada together raised spending by almost 20 per cent (in real terms), the highest growth since 1953, according to Nato’s annual report.

 

“Europe now sits at the centre of the defence rebuild because the threat is close by and the underinvestment deepest,” the Morgan Stanley report said, adding that it has created an investment theme beyond the traditional defence complex of the United States (US).

 

Although the US remains the world’s dominant defence supplier and spender, and Europe is driving demand (Nato members have pledged to spend up to 5 per cent of their GDP on defence and related security requirements by 2035), “some of the most interesting supply-side beneficiaries” are in emerging markets, where exporters offer capability, speed and lower costs, the report said.

 

“Countries still want US equipment, but they also want local support, faster delivery and confidence that contracts will be fulfilled.”

 

As the West retools deterrence after decades of underinvestment, Europe’s demand shock is already translating into tangible market share gains for selected defence suppliers among emerging economies.

 

Nato’s procurement agency has indicated that ammunition deliveries to Ukraine can take 24 to 36 months, while the United Kingdom’s plan to sharply increase 155mm shell production has been delayed by at least six months, with full operation expected in 2027. Europe’s catch-up cycle is likely to be long and uneven, held back by bottlenecks across the industrial base.

 The threat set has also widened. Cyberattacks, navigation jamming, disinformation campaigns and attacks on critical infrastructure add risks that conventional firepower does not address. Europe needs a broader industrial base, faster procurement and suppliers that can deliver quickly, the Morgan Stanley report said.

 

This has made South Korea “one of the more credible emerging market beneficiaries” of the global defence cycle. Its advantage is structural: decades of procurement linked to the North Korean threat have supported continuous investment in weapons systems, large-scale domestic production and specialised supply chains. As a major US ally, South Korea has developed its defence industry within a Western-aligned security framework, while retaining greater manufacturing continuity and scale than many of its Western peers.

 

Calling Brazil “a slimmer chapter” of the emerging market story, the report said it lacks South Korea’s breadth and production scale but has built expertise in military transport aircraft (the KC-390 Millennium), rocket artillery and armoured vehicles. Brazil’s aerospace and defence sectors have produced military transport aircraft now flying with several Nato members, “evidence that emerging market platforms can pass developed markets’ procurement standards”.