The Indian Defence ecosystem is a confluence between the Government and the defence manufacturing industry.
Ministry of Defence has set a target of achieving a turnover of US$ 25 million in aerospace and defence manufacturing by 2025, which includes US$ 5 billion exports.
Of the Union Budget for Financial Year 2023-24, Ministry of Defence has been allocated a total Budget of US$ 72.2 billion (Rs. 5,93,537.64 crore), which is 13.18 % of the total budget. This includes an amount of US$ 16.8 billion (Rs. 1,38,205 crore) for Defence Pensions. The total Defence Budget represents an enhancement of US$ 8.3 billion (Rs. 68,371.49 crore) (13%) over the Budget of 2022-23.
Over the next 5-7 years, the Government of India plans to spend US$ 130 billion for fleet modernisation across all armed services.
India has the world’s third-largest defence expenditure, as of 2021, and expects to export equipment worth US$ 15 billion by 2026.
As per the Union Budget 2022-23, 25% of defence R&D budget has been earmarked for private industry and start-ups which will pave the way for innovation of new defence technologies in India.
Till October 2022, a total of 595 Industrial Licences have been issued to 366 companies operating in Defence Sector.
Defence exports grew by 334% in last five years; India now exporting to over 75 countries due to collaborative efforts.
With Government initiatives, the expenditure on defence procurement from foreign sources which used to be 46% of the overall expenditure has reduced to 36% in the last four years i.e. 2018-19 to 2021-22.
Under the Atmanirbhar Bharat Initiative, four positive indigenization lists of 411 products have been promulgated by Department of Military Affairs and Ministry of Defence to be manufactured domestically for the defence sector, instead of being sourced via imports.
SRIJAN portal launched to promote indigenization. 19509 defence items , have been displayed on the portal for indigenisation.
The government has established two Defence Industrial Corridors in Uttar Pradesh and Tamil Nadu.
India has around 194 defence tech startups building innovative tech solutions to empower and support the country’s defence efforts. As of April 1, 2023, 351 startups/MSMEs/individual innovators have been engaged and 227 contracts have been signed.
The Indian defence sector is one of the world’s largest and most profitable industries, with a 10-year pipeline of over US$ 223 billion in aerospace and defence capital expenditure and a projected medium-term investment of US$ 130 billion.
The Draft Defence Production and Export Promotion Policy (DPEPP) was published in 2020, with the ambitious goal of increasing defence turnover from approximately RS. 80,000 crore (US$ 10 billion) in 2019-20 to approximately RS. 1,75,000 crore (US$ 21.87 billion) by 2025, including the export of RS. 35,000 crore (US$ 4.37 billion).
Among the large defence programs expected to be shifted to “Buy Global – Manufacture in India” are 114 multirole fighter aircraft (MRFA), with a gradual increase in domestic production.
The FDI maximum in defence manufacturing under the automatic route has been raised from 49% to 74% (for new investments requiring an industrial licence), allowing foreign firms to establish manufacturing units with a greater degree of ownership and control.
India ranks fourth among 12 Indo-Pacific nations in self-reliant arms production capabilities, according to a study released this month by the Stockholm International Peace Research Institute (SIPRI).
Under the ‘Aatmanirbhar Bharat’ campaign, the Indian Aerospace and Defence sector has been identified as one of the key focus areas. There have been various policy changes signalling the end of an era of import dependence and aim to promote India as the most preferred global manufacturing destination for foreign OEMs/Tier-1 vendors.
To achieve the desired growth, the two main cornerstones will be indigenization and self-reliance in defence manufacturing.
There have been substantial changes introduced in the defence policy framework in 2020. Raising the levels of Indigenous Content to a minimum of 50 per cent across various categories, introducing new categories like ‘Buy (Global – Manufacture in India)’ under Defence Acquisition Procedure, 2020 (DAP 2020) thus increase the government’s focus on indigenisation, transfer of technology and encouraging private sector participation to be in line with the industry needs.
Thrust on Modernisation & Infrastructure Development Sustained in Union Budget 2023: In the Union Budget 2023-24, the Capital Investment Outlay has been increased steeply for the third year in a row by 33% to US$ 121 billion (Rs. 10 lakh crore), which would be 3.3% of GDP. This will be almost three times the outlay in 2019-20.
As per the Union Budget 2023-24, the Capital Allocations pertaining to modernization and infrastructure development of the Defence Services has been increased to US$ 19.7 billion (Rs. 1,62,600 crore) representing a rise of US$ 1.2 billion (Rs. 10,230 crore) (6.7%) over FY23. Also, the increase in the Capital Budget since 2019-20 has been US$ 7.2 billion (Rs. 59,200 crore) (57%). This increase is a reflection of the Government’s commitment towards sustainable augmentation in the area of modernization & infrastructure development of the Defence Services.
Recognising the crucial role of Research, Innovation and Technological development towards capacity building of the Armed Forces as well as fueling India’s Mission of Aatmanirbharta.
To foster innovation, encourage technology development and strengthen the Defence Industrial ecosystem in the country, iDEX and DTIS have been allocated US$ 14 million (Rs. 116 crore) and US$ 5.4 million (Rs. 45 crore) in the Union Budget 2023-24, respectively representing an enhancement of 93% for iDEX and 95% for DTIS over 2022-23. This will fulfil the Ministry of Defence’s vision to leverage ideas from bright young minds across the country.
The Union Budget 2023-24 has announced a National Data Governance Policy to unleash innovation and research by start-ups and academia. This will enable access to anonymized data which will further boost the Defence Start-ups and iDEX scheme.
Additionally, the Union Budget 2023-24 has also announced that the revamped Credit Guarantee scheme for MSMEs which will take effect from 1st April 2023 through infusion of US$ 1.09 billion (Rs. 9,000 crore) in the corpus. This will enable additional collateral-free guaranteed credit of US$ 24.3 billion (Rs. 2 lakh crore). Further, the cost of the credit has also been reduced by about 1 per cent. This scheme will give a further fillip the MSMEs associated with the Defence Sector.
BrahMos: A contract was signed for procurement of 35 combat and three Practice BrahMos missiles for two P-15B ships from M/s BrahMos Aerospace Pvt. Ltd., India for an amount of US$ 209 million (Rs. 1,723 crore).
The Indian Navy received a fully indigenised fuze YDB-60 for underwater Rocket RGB 60 in March, 2023 manufactured for the first time by a private Indian industry.
Multi-Purpose Vessels: Contract for procurement of two Multi-Purpose Vessels (MPVs) for Indian Navy from M/s Larsen &Tubro Limited, Mumbai for a total cost of US$ 107 million (Rs. 887 crore) under Buy (Indian) category was signed in March 2022.
Fast Patrol Vessels: A contract for construction of eight Fast Patrol vessels (FPVs) for Indian Coast Guard with M/s Goa Shipyard Limited (GSL), Goa at a total cost of US$ 57.6 million (Rs. 473.47 crore) under Buy (Indian) category was signed in March.
The Indian defence manufacturing industry is a significant sector for the economy. Demand growth is likely to accelerate with rising concerns of national security. Growth was observed in the value of production by Defence PSUs due to numerous key product developments through research and development initiatives, in addition to various products and equipment being manufactured through transfer of technology.
The defence manufacturing sector has seen some major developments, investments and support from the Government in the recent past.
Under Mission Raksha Gyan Shakti, 1,640 Intellectual Property Rights (IPRs) (until March 31, 2023) have been granted/registered by the Indian Patent office.
Defence Research and Development Organization (DRDO) displayed a wide range of 430 products encompassing the strategic and tactical weapon systems, defence equipment and technologies developed in DefExpo 2022 which was held in Gandhinagar, Gujarat from October 18–22, 2022.
India’s defence production stood at Rs. 68,019 crore (US$ 8.6 billion) in FY23.
The 3rd Edition of Vietnam India Bilateral Army Exercise “Ex VINBAX 2022” is scheduled to be conducted at Chandimandir from 1-20 August 2022.
Defence exports in the country stood at Rs. 15,920 crore (US$ 1.94 billion) in FY23. The Central government aims to take India’s defence exports up to US$ 5 billion by 2024-25.
Indigenously developed Laser-Guided Anti-Tank Guided Missiles (ATGM) were successfully test-fired from Main Battle Tank (MBT) Arjun by Defence Research and Development Organisation (DRDO) and Indian Army at KK Ranges with support of Armoured Corps Centre & School (ACC&S) Ahmednagar in Maharashtra on August 04, 2022.
Foreign Direct Investment (FDI) equity inflow in the defence sector for April 2000-December 2022 stood at US$ 15.78 million, as per data released by the Department for Promotion of Industry and Internal Trade (DPIIT).
8th India-Thailand Defence Dialogue was held in Bangkok on April 20, 2023. The meeting was co-chaired by Special Secretary, Ministry of Defence, India Smt Nivedita Shukla Verma and Deputy Permanent Secretary for Defence of Ministry of Defence, Thailand General Nuchit Sribunsong. During the meeting, both sides expressed satisfaction at the ongoing defence cooperation between the two countries.
Ministry of Defence, on March 31, 2023, signed a contract with Ultra Dimensions Pvt. Ltd. (UDPL), Vishakhapatnam for modernisation of Naval Aircraft Yards (NAYs) at Goa and Kochi, at a cost of approximately US$ 57.4 million (Rs. 470 crore). The modernisation will augment operational readiness of Naval Aviation Platforms and reduce dependence on external agencies and foreign Original Equipment Manufacturers (OEMs) for repairs. This project will be a proud flag bearer of ‘Aatmanirbhar Bharat’.
Providing a further boost to ‘Aatmanirbharta’ in defence, the Ministry of Defence, on March 30, 2023, signed contracts for procurement of improved Akash Weapon System and 12 Weapon Locating Radars, WLR Swathi (Plains) for the Indian Army at an overall cost of over US$ 1.11 billion (Rs. 9,100 crore).
The Union Cabinet has accorded approval to sign a contract with Larsen & Toubro Limited (L&T) for acquisition of three Cadet Training Ships, at an overall cost of US$ 379.5 million (Rs. 3,108.09 crore), under Buy {Indian-IDDM (Indigenously Designed, Developed and Manufactured)} category. The delivery of ships is scheduled to commence from 2026.
In June 2022, the Ministry of Defence approved the procurement of military equipment and platforms worth Rs. 76,390 crore (US$ 9.84 billion) from domestic industries.
In June 2022, Ministry of Defence signed a deal for the Astra Mk 1 Beyond Visual Range (BVR) AAM and associated equipment, at a cost of Rs. 2,971 crore (US$ 382.79 million).
The Startup Incubation and Innovation Centre, IIT-Kanpur (SIIC IIT-Kanpur) recently signed an MoU with Defence Innovation Organisation (DIO) to nurture and support start-ups and SMEs in the defence sector through its flagship programme iDEX Prime.
The government has established two Defence Industrial Corridors (DICs) in the country, one in Uttar Pradesh called the Uttar Pradesh Defence Industrial Corridor (UPDIC) and the other in Tamil Nadu called the Tamil Nadu Defence Industrial Corridor (TNDIC), with the goal of attracting Rs. 10,000 crore (US$ 1.31 billion) in investment in each.
100% FDI is allowed in the defence industry, wherein 74% is allowed the under automatic route and beyond 74% is through the government route.
In the Union Budget 2022-23: Ministry of Defence has been allocated Rs. 525,166 crore (US$ 67.66 billion), which includes expenditure on salaries of armed forces and civilians, pensions, modernisation of armed forces, production establishments, maintenance, and research and development organisations.
The Defence Minister, Mr. Rajnath Singh handed over two 'Made in India' platforms, a Fast Patrol Vessel and a Landing Craft Assault ship, to the Maldives National Defence Forces, during a visit to the country in May, 2023.
India and the Maldives conducted the 4th Defence Cooperation Dialogue (DCD) in Male, Maldives on March 19, 2023. During the interaction, the two nations reviewed the ongoing bilateral defence cooperation activities and both sides apparently expressed satisfaction at the increasing engagements.
In November 2021, Defence Acquisition Council (DAC) boosted the ‘Make in India’ initiative by according Acceptance of Necessity (AoN) — to capital acquisition proposals worth Rs. 7,965 crore (US$ 1.07 billion) — for modernisation and operational needs of armed forces.
In November 2021, the Defence Research and Development Organisation (DRDO), India and Directorate of Defence Research and Development (DDR&D), Ministry of Defence, Israel, entered a Bilateral Innovation Agreement (BIA) to promote innovation and R&D in start-ups and MSMEs of both countries for development of dual use technologies.
Defence ministry plans to put 101 defence items (artillery guns and assault rifles) under import embargo to offer potential military hardware manufacturing opportunities to the Indian defence industry.
India is also developing high-altitude long-endurance unmanned aircrafts for surveillance and reconnaissance applications.
The Indian Defence sector which is the second largest armed force in the world offers a promising growth journey ahead.
The Indian government is focussing on innovative solutions to empower the country’s defence and security via ‘Innovations for Defence Excellence (iDEX)’, which has provided a platform for start-ups to connect to the defence establishments and develop new technologies/products in the next five years (2021-2026). The Defence Ministry has set a target of 70% self-reliance in weaponry by 2027, creating huge prospects for industry players. The defence ministry estimates potential contract worth Rs. 4 lakh crore (US$ 57.2 billion) for the domestic industry in the next 5-7 years (2025-2027).
