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Editor’s Note
India has made significant strides in defence production, but the authors argue that building a truly self-reliant defence industry requires deeper structural reform. Drawing lessons from China, the two-part opinion piece examines how industrial policy, private enterprise, research and state-level competition can collectively shape strategic capability. Part I traces India’s shift from an import-dependent model to an emerging defence manufacturing ecosystem, while identifying states as a critical but often overlooked enabler. Part II will examine how greater competition among states could be the missing link in India’s quest to become a global defence manufacturing power.
Part I:
From Defence Buyer to Industrial Power: Why India Needs Structural Reform
When military historians analyse wars, they often focus on strategy, leadership and battlefield performance. Economists, however, look elsewhere. They ask a more fundamental question: Who possessed the industrial capacity to sustain military power? In modern warfare, victory is determined as much by factories, laboratories and supply chains as by soldiers and weapons.
China learned this lesson the hard way.
The spectacular American victory during the 1991 Gulf War demonstrated how precision-guided munitions, satellite communications, stealth aircraft and network-centric warfare had fundamentally altered the character of war. Barely five years later, the 1995–96 Taiwan Strait Crisis exposed another uncomfortable reality for Beijing. Unable to challenge the deployment of two US aircraft carrier battle groups, China was forced to confront the technological gap between its military and that of the United States. The crisis was not merely a military setback; it was a strategic humiliation that convinced the Chinese leadership that economic strength and defence industrial capability were inseparable.
The diagnosis was equally alarming. China’s sprawling defence industry was plagued by inefficiency, duplication and outdated production methods. State-owned defence enterprises were burdened with heavy financial losses, estimated at over US$6 billion during the mid-1990s, while innovation remained limited and military production continued to depend on obsolete Soviet-era technologies. The People’s Liberation Army could not aspire to become a world-class force without first transforming the industries that equipped it.
Beijing responded with extraordinary clarity of purpose.
The first major reform was the adoption of Civil-Military Integration (CMI), later expanded into Military-Civil Fusion. Rather than treating civilian and military technologies as separate domains, China encouraged universities, private companies, research institutions and commercial industries to develop dual-use technologies that could simultaneously serve civilian markets and defence requirements. Artificial intelligence, robotics, electronics, shipbuilding, aerospace, telecommunications and advanced materials all became part of a national innovation ecosystem.
Institutional reforms followed. The powerful Commission on Science, Technology and Industry for National Defence (COSTIND), which exercised extensive control over defence research, production planning and industrial management, underwent successive restructuring. Defence production was gradually separated from regulatory functions, large defence conglomerates were reorganised, competition was introduced among state-owned enterprises, and procurement mechanisms became more closely aligned with operational military requirements. Simultaneously, research institutions were encouraged to collaborate with commercial industries, while foreign technology acquisition, joint ventures and overseas investments accelerated technological catch-up.
China’s reforms extended well beyond organisational restructuring. Defence research received sustained financial support, export promotion became an integral part of industrial policy, and provincial governments actively competed to attract defence investments through industrial parks, infrastructure development and favourable investment policies. Local governments became stakeholders in national defence industrial growth rather than passive observers.
The results became visible over the next two decades. China moved steadily from licensed production to indigenous design, producing advanced fighter aircraft, naval vessels, missiles, drones, space systems and electronic warfare capabilities. Its defence companies emerged among the world’s largest, while Chinese military equipment became increasingly competitive in global markets. According to recent data from the Stockholm International Peace Research Institute (SIPRI), China is now among the world’s leading exporters of major arms, a remarkable transformation for a country that was once heavily dependent on foreign military technology.
India’s journey followed a very different trajectory.
The Kargil War of 1999 exposed serious shortcomings in surveillance, logistics, precision weaponry and procurement procedures. The subsequent review committees rightly recommended reforms. However, the policy response focused overwhelmingly on improving defence procurement. The objective was understandable: acquisitions had become slow, cumbersome and vulnerable to controversy. Successive Defence Procurement Procedures attempted to streamline processes, introduce transparency and reduce delays.
Yet procurement reform alone could never create a defence industrial base.
India continued purchasing major platforms from abroad while domestic manufacturing remained largely confined to licensed production under public sector enterprises. Private industry had limited participation, research funding outside government institutions remained modest, and technology transfer seldom resulted in genuine indigenous capability. Consequently, India continued to feature among the world’s largest arms importers for many years, even as its defence exports remained negligible.
The real shift came only during the past decade, when policymakers recognised that procurement reform had to be complemented by manufacturing reform.
The emphasis gradually moved from buying equipment to building industrial capacity.
A series of interconnected reforms followed. The “Make in India” initiative identified defence manufacturing as a strategic sector. Foreign Direct Investment limits were progressively liberalised to attract advanced technologies and global manufacturers. Defence Acquisition Procedure (DAP) 2020 introduced acquisition categories prioritising indigenous content, while Positive Indigenisation Lists restricted imports of numerous military items that could be manufactured domestically. Innovation programmes such as Innovations for Defence Excellence (iDEX), Technology Development Fund (TDF) and ADITI sought to integrate start-ups, MSMEs and academia into the defence innovation ecosystem. Simultaneously, the corporatisation of the Ordnance Factory Board, creation of defence industrial corridors and greater emphasis on exports signalled a fundamental shift in policy thinking.
The results have been encouraging.
India’s defence production has increased substantially over the past decade, while exports have risen dramatically from less than Rs 700 crore in 2013–14 to over Rs 38,000 crore in 2025–26, reaching more than 80 countries. Indigenous manufacturing today involves Defence Public Sector Undertakings, private companies, nearly 17,000 MSMEs, start-ups, academic institutions and research laboratories. The defence industrial ecosystem is considerably broader than it was even ten years ago.
These achievements deserve recognition.
Yet celebrating production figures alone would be premature.
A significant proportion of India’s high-end defence manufacturing still depends on imported engines, sensors, propulsion systems, semiconductor components, specialised alloys and other critical technologies. Many Indian companies operate through licensed production, joint ventures or foreign collaborations. While such partnerships are necessary during industrial transition, long-term strategic autonomy ultimately depends upon creating indigenous technological capabilities rather than merely assembling imported systems.
This is where the conversation often overlooks an important actor, the state government.
Defence remains constitutionally a Union subject. Procurement, exports, licensing and strategic planning are directed by the central government. However, defence factories do not emerge through policy announcements alone. They require land, electricity, industrial infrastructure, transport connectivity, skilled manpower, testing facilities, local regulatory clearances and supplier networks. These are functions largely performed by state governments.
The success of Uttar Pradesh and Tamil Nadu as Defence Industrial Corridors demonstrates precisely this point. While the Union government provided policy direction, the states created dedicated industrial agencies, developed infrastructure, facilitated investments and built regional manufacturing ecosystems. Other states such as Gujarat, Maharashtra, Andhra Pradesh, Odisha and Madhya Pradesh are attempting similar initiatives with varying degrees of success.
The next phase of India’s defence industrial transformation will therefore depend not only on New Delhi’s policies but equally on how effectively individual states compete to attract investments, nurture MSMEs, support innovation and integrate local industries into national defence supply chains.
This is perhaps the biggest lesson India can draw from China’s experience.
China did not build a globally competitive defence industry simply by reforming procurement. It aligned national strategy, industrial policy, provincial governments, research institutions and private industry towards a common objective over nearly three decades. Defence manufacturing became part of economic planning, technological development and regional industrial growth.
India has begun travelling along the same road, albeit much later and through a democratic, market-oriented model. The direction is encouraging, but the journey is far from complete.
The next challenge is no longer whether India should manufacture more defence equipment. It is whether the country can build a genuinely integrated defence-industrial ecosystem where the Centre provides strategic direction, states become industrial enablers, industry drives innovation, and research institutions deliver technological breakthroughs.
That is the reform that will ultimately determine whether India remains a large defence market or emerges as a genuine global defence manufacturing power.
In Part II, we examine why state governments have become the missing link in India’s defence-industrial transformation, and how competition among states could shape the country’s strategic future.
Dr Lakshman Kumar and Prof. V.S. Rawat
(Dr Lakshman Kumar has extensively researched the Sino-Indian conflict, Cold War dynamics, and the Indo-Pacific region, and the co-author, Prof. V.S. Rawat, is a Professor of Practice for Defence & Security and Director, Defence Research & Innovation Foundation, at IIT Ropar. He is also Honorary Distinguished Fellow at the CENJOWS).
