Defence outperformance: Exports grow, but a more broadbased strategy needed

Private sector must drive defence growth, with successful nations relying on strong public-private partnerships to build competitive and scalable manufacturing ecosystems

The government has announced that defence exports in the recently concluded financial year of 2025-26 saw a major increase of more than 60 per cent over the previous year, largely driven by defence public-sector units (DPSUs). These went up by over 150 per cent during the year; this follows an impressive performance in 2024-25 as well. The Ministry of Defence can correctly view this as a vote of confidence in India’s ability to move up the value chain. This growth comes at an important time, as Indian producers should carve a niche for themselves in a world in which defence Budgets are once again increasing. There is a growing demand for affordable and accessible platforms, given that recent experiences of conflict suggest that weapons are used and supply chains strained at a faster rate than planned. Many countries now see the benefit of stockpiling as well as developing integrated supply chains with trusted partners.

 

A step back, however, is needed to evaluate how effectively India can take advantage of this global environment. While the performance of DPSUs has been commendable, and the ministry has stressed that India now exports defence equipment to more than 80 countries, it is nevertheless true that the performance during the year was partly due to specific and non-replicable contracts — particularly to Armenia, which is importing $2 billion or so of Akash surface-to-air missiles as well as rocket launchers and howitzers. This reflects the unique geopolitical status of Armenia. It is threatened by Azerbaijan, which is supported by Turkiye, a major producer of reasonably-priced equipment; it also wants to diversify away from its dependence on Russia, which is dangerously expansionist. It has fewer options than many other possible buyers. This also demonstrates that defence contracts and defence exports follow geopolitical alignments.

 

It is also necessary to recognise that the private sector must be seen as the engine of growth in this sector. Countries that have emerged as major suppliers at competitive price points in recent years have seen close public-private partnership in defence manufacturing. The Republic of Korea, for example, which has been a standout performer in defence exports over the past decade, has a mixture of publicly controlled corporations — two major players are Korea Aerospace Industries, 26 per cent of whose equity is owned by the national export-import bank, and the Hanwha group, a family-run conglomerate. New Delhi has to recognise that it must begin to trust the private sector enough to boost its ordering of complete platforms. It must also recognise that a great deal of interest from the global industry in India comes from a belief in the dynamism and innovation being displayed by smaller startups in the sector. These need to be integrated better into the supply chains, which are currently dominated by DPSUs.

 

The end purpose of defence-production policy must be twofold. The first is creating a defence-industrial sector at scale within India. Recent history shows that this is a key determinant of national power, and imports cannot completely replace a domestic manufacturing base. The second is that New Delhi must understand that integration of domestic production with global markets and suppliers is a geopolitical advantage because it provides the country additional levers to use for stabilising bilateral or plurilateral ties.