The private sector's defence share reached 23% in FY 2024-25, driven by reforms, indigenization, infrastructure, innovation, and targeted policies, aiming to boost self-reliance and global competitiveness.

Why in the News?

According to the data from the Department of Defence Production, the private sector share in defence production hits record of 23% in FY 2024-25, marking third consecutive year of increasing private sector involvement.

Institutional reforms
- Creation of Chief of Defence Staff (CDS) and Department of Military Affairs to enhance synergy within the armed forces and promote the use of indigenous equipment by the Services.
Policy and Regulatory Reforms
- Defence Acquisition Procedure (DAP-2020): Prioritizes domestic procurement, opening larger contracts to private players and strengthening indigenous manufacturing.
- Liberalized Foreign Direct Investment (FDI) Policy: Since 2020, up to 74% FDI allowed under Automatic Route (and up to 100% through the Government Route), enabling global defence majors to transfer technology to Indian firms (e.g., Tata-Airbus partnership for C-295 aircraft).
- Positive Indigenization Lists (PILs): Imports of over 5,500 items are restricted, mandating domestic sourcing and creating assured demand for private industry.
- Make in India Initiative: This flagship campaign promotes indigenous manufacturing and encourages private companies to invest in defence production, boosting private sector involvement. E.g., SRIJAN Portal.
Industrial Infrastructure and Budget Support
- Defence Industrial Corridors: Dedicated manufacturing hubs established in Uttar Pradesh and Tamil Nadu with incentives, infrastructure, and investment-friendly policies attracting private sector investments.
- Budgetary Prioritization: For FY2025-26, the Ministry of Defence has earmarked 75% of its modernization budget (₹1.11 lakh crore) specifically for procurement from Indian firms.
Innovation and Ease of Doing Business
- Innovation Ecosystem (iDEX & ADITI): Startups and MSMEs receive grants and contracts to develop cutting-edge technologies such as artificial intelligence, drones, and quantum systems, fostering advanced indigenous innovation.
- Ease of Doing Business Measures: Processes simplified by extending license validity, de-licensing many defence items, and implementing digital export approval systems, reducing entry barriers for private companies.

Challenges in India's Defence Production

Production lag: Industry is way off the target set by the government for exports. E.g., HAL losing the Malaysian LCA contract and Garden Reach Shipbuilders losing a tender in the Philippines.
Industrial and manufacturing: Heavy reliance on imports for raw materials, high-tech components, and electronic systems, limited production capacity and demand affecting scalability, etc.
Dependence on imports: Continued reliance on imported armaments, components, and machine parts exposes India to supply chain disruptions (e.g., S-400 delays due to the Russia-Ukraine conflict).
Technological: Foreign Original Equipment Manufacturers (OEMs) are protective of intellectual property and provide limited technology transfer, hindering local innovation and advanced manufacturing capabilities.
- Limited technological depth in emerging defence technologies including AI, hypersonics, cyber warfare, and stealth tech, etc.
Funding Gaps: Defence budget still remains below the 3% benchmark, with over half spent on personnel costs, leaving limited funds for modernization and R&D.
Dependence on foreign technology: Even with "Make in India," India remains dependent on global partners like the US and France for cutting-edge technologies.

Way Forward

Enhance and Prioritize Indigenous R&D: Significantly increase investment in defence R&D to at least 2% of GDP, matching global standards.
Shift to Absorption of Technology (AoT): Promote joint ventures with foreign OEMs that include technology sharing, co-development, and co-manufacturing.
Focus on Skill Development and Human Resources: Develop specialized defence education, vocational training, and technical skill programs aligned with industry and R&D needs.
Boost Export Competitiveness: Encourage DPSUs and private companies to jointly bid in foreign contracts for stronger competitiveness.
Foster Innovation: Provide sustained handholding, funding, and capacity-building support to smaller enterprises to integrate them into defence supply chains.
Vijayaraghavan Committee: Empower a PMO-led Defence Technology Council to oversee defence technology decision, Refocus DRDO primarily on research and development, Increase private sector and academia participation in defence R&D.

Conclusion

The coming decade offers an opportunity to position India not just as a manufacturer, but as an innovator shaping the future of warfare technologies, from AI-driven systems to space and cyber defence. By leveraging its demographic dividend, deepening international collaborations on equitable terms, and cultivating a vibrant ecosystem of startups and MSMEs, India can redefine its role in the global defence value chain.