The Indian defence sector is experiencing a significant transformation, propelled by the pursuit of Atmanirbharta or self-reliance. This drive for self-sufficiency in technology, quality, and cost-based competitiveness is not just a leap but a well-advanced journey. With new policies in place, India is actively seeking to reduce its dependence on foreign suppliers and strengthen its indigenous defence industry.
The need for self-reliance in defence arises from India’s unique geopolitical position, diverse security challenges, and the imperative to modernise its armed forces. To achieve this, the country aims to indigenously design, develop, and manufacture defence equipment and systems, minimising reliance on imports. India’s import dependence has historically resulted in cost overruns, delays, and technological obsolescence.
India has undertaken several initiatives to counter these challenges to foster self-reliance in defence. The ‘Make in India’ campaign encourages private sector participation in defence manufacturing, while research and development in defence technology have received heightened attention. The ‘Atmanirbhar Bharat’ initiative, launched in 2020, further bolsters the development of indigenous defence capabilities and creates opportunities for defence exports.
These efforts have yielded tangible results, with the value of defence production in the Financial Year 2022-23 exceeding Rs one lakh crore for the first time, currently standing at Rs 106,800 crore. It represents a remarkable growth rate of over 12 per cent compared to the previous year.
The Ministry of Defence has actively collaborated with defence industries and associations to foster a conducive environment for defence production nationwide. Policy reforms have been implemented to streamline the ease of doing business, bringing Micro, Small, and Medium Enterprises (MSMEs) and start-ups into the defence supply chain. This proactive approach has resulted in a nearly 200 per cent increase in the number of defence licenses issued to industries over the past 7-8 years, invigorating the defence industrial manufacturing ecosystem and creating significant employment opportunities.
Defence Exports Reach All-Time High in Financial Year 2022-23
India’s defence exports have reached an all-time high of Rs 15,920 crore in the financial year 2022-2023, almost Rs 3,000 crore more than the previous financial year and a whopping 10-fold rise since 2016-17. The country’s defence exports in 2021-22 were Rs 12,815 crore, Rs 8,434 crore in 2020-21, Rs 9,115 crore in 2019-20, and Rs 10,745 crore in 2018-19, Rs 4,682 crore in 2017-18 and Rs 1,521 crore in 2016-17, according to official data.
Comparing the import-export ratio in the defence sector from 2013-14 to 2021-22, it has substantially improved. In 2013-14, the import value (including Capital + Revenue) stood at Rs 41,198.61 crore, while in 2021-22, it reached Rs 50,061.67 crore. On the other hand, exports witnessed significant growth, increasing from Rs 1,153 crore in 2013-14 to Rs 12,815 crore in 2021-22. As a result, the import-export ratio has improved, indicating a positive shift towards reducing imports and strengthening India’s position as an exporter in the defence sector.
India is now exporting to over 85 countries. Indian industry has shown its design and development capability to the world, with 100 firms exporting defence products. The Defence Ministry targets to raise India’s annual defence exports to $5 billion by 2024-25, and it has set a goal of a turnover of $25 billion (Rs 1.75 lakh crore) in defence manufacturing in the next five years. To achieve this, it has brought in several new policies, such as earmarking 75 per cent of its capital budget for 2023-24 towards procurements from domestic sources and four positive indigenisation lists of items, with the embargo on imports beyond timelines specified against them.
The government has initiated various policies to boost the country’s indigenous design, development, and manufacture of defence equipment and make a sustainable defence industrial ecosystem.
Positive Indigenization Lists (PIL) to Boost Domestic Sector
The government has issued four ‘Positive Indigenisation Lists’ of defence equipment and platforms, where imports will be embargoed to boost indigenous production. On 14 May 2023, the government approved a list of 928 components and subsystems that will only be procured from domestic firms once import bans on them kick in over a period of five-and-a-half years.
The MoD has set specific timelines for the import ban of the items, spanning from December 2023 to December 2028. This list continues to the three similar PILs brought out in December 2021, March 2022, and August 2022. These lists contain 2,500 already indigenised items and 1,238 (351+107+780) items indigenised within the given timelines.
Defence Acquisition Procedure (DAP 2020)
Under the Defence Acquisition Procedure (DAP 2020), the government promotes domestic manufacturing and maximises the acquisition of defence equipment from indigenous sources. The most preferred option for capital acquisition is the ‘Buy Indigenously Designed Developed and Manufactured (IDDM)’ category, followed by the ‘Buy (Indian)’ category. The ‘Make’ categories encourage self-reliance by involving the Indian industrial ecosystem, including the private sector.
DRDO Driven Indigenisation
The government introduced funding provisions for projects like Make-I, Technology Development Fund (TDF), and Innovations for Defence Excellence (iDEX) to support indigenous development. The TDF scheme, executed by DRDO, assists MSMEs and startups in developing indigenous components, products, systems, and technologies. The funding under these schemes has been substantially enhanced, from Rs 10 crore to Rs 50 crore per Project, and the same under the iDEX Prime scheme has been enhanced from Rs 1.5 crore to Rs 10 crore, further promoting the vision of ‘Aatmanirbharta in defence.’
The ‘Development cum Production Partner (DcPP)’ model of DRDO involves the industry in system development projects, manufacturing both development and production units, along with life cycle support.
DRDO test facilities have been made accessible to industries for utilisation, facilitating technology development and testing. Two Defence Industrial Corridors in Uttar Pradesh and Tamil Nadu have been established to foster the production of defence and aerospace-related items.
A portion of the R&D budget (25%) has been earmarked for industry, start-ups, and academia to encourage indigenous design and manufacturing. Additionally, indigenous sources have allocated funds for procurement, emphasising a higher domestic-to-foreign procurement ratio.
In order to promote indigenous design and manufacturing, funds have also been earmarked for procurement from indigenous sources. For the FY 2023-24, funds have been earmarked in the ratio 67.75:32.25 between Domestic and Foreign procurement in the Capital Acquisition Budget of the Ministry of Defence (MoD). In addition, the MoD has also directed spending an amount of Rs 1,500 crore towards procurement from start-ups.
The government has waived Transfer of Technology (ToT) fees for Development cum Production Partners, Production Agencies, and Lead System Integrators (LSI). Industries have been granted free access to DRDO patents to promote innovation.
DRDO identified a list of systems that the industry will develop, as per the Ministry. DRDO will not undertake the development of such systems, fostering greater industry involvement.
Moreover, DRDO actively engages and skills youth through internships, apprenticeships, and specialised courses to prepare them for the defence industries. These measures collectively support India’s mission to achieve self-reliance in defence and strengthen the country’s defence capabilities.
Over the past three years, the Services have approved the induction of 43 systems developed or being developed by DRDO. The year-wise breakdown of Acceptance of Necessity (AoN) is as follows:
11 in 2021, 25 in 2022, and seven in 2023.
In the financial years 2020-21 to 2022-23, a total of 122 contracts were signed for capital procurement of defence equipment. Impressively, 87% of these contracts, equivalent to 100 contracts, were signed with Indian vendors, demonstrating the government’s focus on promoting domestic manufacturing and reducing reliance on imports.
To conclude, India’s pursuit of self-reliance in defence has become a driving force for developing indigenous defence capabilities. With policy initiatives, collaborative efforts, and a focus on research and development, the Indian defence sector presents a promising growth opportunity for businesses involved in manufacturing and services related to defence. The nation’s commitment to building a sustainable defence industrial ecosystem marks a crucial step towards achieving its vision of self-reliance and strengthening its position in the global defence landscape.