India’s Defence Sector Transformation: Towards Self-Reliance, Innovation, and Global Competitiveness

Context:

India’s defence sector is undergoing a historic transformation. Rising security challenges, the need for technological superiority, and the ambition to reduce import dependence have all contributed to this shift. At the recent Controllers’ Conference 2025, officials outlined reforms to speed up procurement, strengthen domestic manufacturing, and improve financial agility.

Over the past few years, the government has launched wide-ranging reforms to build indigenous capabilities, speed up procurement, and create an ecosystem where private companies, start-ups, and MSMEs can play a major role.

This transformation has been driven by:

• Growing geopolitical tensions and the lessons from Operation Sindoor.
• A renewed focus on self-reliance under the Atmanirbhar Bharat initiative.
• The recognition that defence spending can drive economic growth and innovation.
• The rise in global military expenditure (now over $2.7 trillion)

Budgetary Outlay and Economic Significance:

The Union Budget 2025–26 allocated an unprecedented Rs. 6.81 lakh crore (US$ 78.7 billion) to the Ministry of Defence, marking a 9.5% year-on-year increase. This includes:

• Capital expenditure of Rs. 1.80 lakh crore (US$ 20.8 billion) dedicated to procuring new weapons, warships, aircraft, and modern equipment.
• Rs. 7,146 crore (US$ 825.7 million) set aside specifically for the Border Roads Organization (BRO), critical for building infrastructure in strategic areas.

This budget reflects the importance placed on operational readiness, infrastructure expansion, and technological upgrades.

Market Size and Global Standing:

According to the Global Power Index, India’s defence sector ranks fourth globally in firepower, with a score of 0.0979 (closer to 0 means higher strength).

Key targets and milestones:

• Defence manufacturing target: Rs. 3,00,000 crore (US$ 34.7 billion) by FY29.
• Defence exports: Crossed Rs. 21,000 crore (US$ 2.43 billion) in 2024, with a target of Rs. 50,000 crore (US$ 5.8 billion) by 2029.
• India now exports to more than 75 countries and has moved up the ranks as a defence exporter, compared to its position in 2019 as the 19th largest.

This export growth—334% in five years—shows the growing global trust in India’s defence manufacturing capabilities.

Recent Investments and Industrial Developments:

India’s defence sector is attracting significant investments from Indian conglomerates, foreign companies, and start-ups:

• Rolls-Royce: Plans to greatly increase sourcing of aerospace and defence components from India over the next five years.
• TechEagle: Will invest Rs. 100 crore (US$ 11.6 million) over three years to expand drone manufacturing for public safety and disaster relief.
• JSW Defence: Committed Rs. 800 crore (US$ 92.4 million) to set up drone production in Telangana.
• Paras Defence & Space Technologies: Announced a Rs. 12,000 crore (US$ 1.39 billion) investment to establish India’s first Optics Park in Maharashtra, rolling out between 2028 and 2035.
• TATA Aircraft Complex: Launched India’s first private sector final assembly line for military aircraft in Vadodara. The facility will manufacture 40 C-295 transport aircraft domestically after initial imports.
• Bharat Electronics Ltd (BEL): Partnered with IIT Delhi to translate naval Deep Tech research into products.
• Green Propulsion System: A Bengaluru start-up, Bellatrix Aerospace, successfully tested an eco-friendly propulsion system on ISRO’s PSLV C-58 mission—showcasing innovation in dual-use technology.

Indigenisation and Policy Reforms:

To further reduce imports, the government notified the fifth Positive Indigenisation List (PIL), comprising 346 items, including:

• Line Replacement Units
• Sub-systems and components
• Raw materials with an import substitution value of Rs. 1,048 crore (US$ 126.57 million)

This complements earlier policies encouraging private sector and start-up participation.

Procurement Reforms and Faster Acquisition:

India has historically struggled with long procurement cycles—averaging 5–6 years for major equipment. Recognising this, new policies aim to compress timelines and improve transparency:

• Rafale Marine Aircraft Procurement: Completed in just 24 months, showcasing a model for faster acquisitions.
• Defence Acquisition Procedure (DAP) 2025: Under preparation to replace DAP 2020, with focus areas including:
• Simplified documentation.
• Field trial compression.
• Open tenders rather than nominations.
• Clear timelines to give industry better visibility.
• Emergency procurement: Now accounts for around 15% of the budget to ensure readiness during crises.

This framework will encourage industry to invest in capacities without fear of delays.

Private Sector and Start-up Participation:

The transformation in India’s defence sector strongly emphasises expanding beyond public sector undertakings. Notable examples:

• Private companies were rapidly mobilised to three-shift production following the Pahalgam terror attack.
• Public-private models where DRDO leads R&D and private firms take over production (e.g., Bharat Forge manufacturing DRDO-designed carbines).
• Start-ups supported under the Technology Development Fund (TDF), which has awarded new projects in drones, sensors, and propulsion technologies.

This approach creates a broader, more resilient defence ecosystem.

Export Promotion and Global Integration:

India aims to become a credible exporter of defence hardware. Highlights:

• Exporting to over 75 countries, with strong demand for ammunition, small arms, and drone systems.
• Defence import value relatively stable at US$ 463–469 million, indicating a shift towards domestic production.
• Plans to reach US$ 5 billion exports within five years.

Exports not only boost revenues but also strengthen diplomatic ties and build India’s strategic profile.

Digital Platforms and Financial Modernisation

To improve transparency and efficiency, digital tools have been adopted widely:

• Government e-Marketplace (GeM): Rs. 2 lakh crore in procurements processed.
• SPARSH: Pension services extended to 32 lakh retired personnel.
• Comprehensive Pay System and Centralised Database: Under development to modernise payroll and data management.

These platforms ensure accountability and faster service delivery.

Fiscal Discipline and Budget Utilisation

Fiscal discipline remains a cornerstone of reforms:

• Full capital budget utilisation in FY25.
• Spending till May-end of FY26 at 14% of the total Rs. 1.8 lakh crore capex budget, compared to just 4% the previous year.
• The Ministry of Finance has assured no constraints on capital spending if additional requirements arise.

These measures keep equipment modernisation on track and avoid unspent allocations.

Focus on Dual-use Technologies and Innovation

The government recognises that defence investments also strengthen civilian industries:

• Start-ups like Bellatrix Aerospace have created propulsion systems with civilian and military applications.
• The Defence Research and Development Organisation has awarded seven projects in 2024 to develop indigenous technologies.

This dual-use approach ensures efficient utilisation of resources and accelerates innovation.

Conclusion

India’s defence sector is rapidly transforming into a modern, agile, and self-reliant ecosystem. With record budget allocations, streamlined procurement, and expanded private participation, the country is building the foundation for technological leadership and operational readiness.

The journey is not without challenges. Compressed timelines, indigenisation targets, and fiscal discipline require careful planning and collaboration. But the trajectory is clear: India aims to become not just a major consumer but also a significant exporter of advanced defence systems.

Through these efforts, the defence sector is set to drive economic growth, enhance national security, and showcase India’s capabilities on the world stage.