Positive Indigenisation Lists

Another important policy tool is the introduction of Positive Indigenisation Lists. The government has issued five such lists that restrict imports and encourage local manufacturing.

These lists cover a wide range of defence equipment, including artillery guns, assault rifles, corvettes, sonar systems, transport aircraft, light combat helicopters, radars, wheeled armoured platforms, rockets, bombs, and armoured vehicles. By creating assured demand for domestically produced equipment, these lists play a critical role in strengthening the domestic defence industry. 

Innovations for Defence Excellence (iDEX)

Innovation has also become a central pillar of the defence ecosystem. The Innovations for Defence Excellence (iDEX) initiative has been introduced to engage startups, MSMEs, and individual innovators. It provides funding and support for developing solutions to military challenges. Historically, low investment in research and development was a key limitation of India’s defence sector. By encouraging innovation and startup participation, iDEX aims to address this gap and build a more technology-driven ecosystem. 

In addition, foreign investment policies have been liberalised to attract global capital and technology. In September 2020, the government allowed up to 74% foreign direct investment (FDI) through the automatic route and beyond 74% through the government route. Since April 2000, total FDI inflows into the defence sector have reached ₹5,516.16 crore. This policy shift is intended to enhance technology transfer, improve manufacturing capabilities, and integrate India into global supply chains. 

Institutional reforms have further strengthened the sector. The corporatisation of the Ordnance Factory Board into separate corporate entities has improved accountability, efficiency, and financial discipline. These changes aim to make defence manufacturing entities more competitive and performance-oriented.

As production volumes rise, the next stage of transformation depends on technological depth. India is gradually moving from assembly and licensed production toward design-led manufacturing and indigenous innovation. This transition is essential for sustaining export growth and improving competitiveness in global markets, where quality, cost, and technological capability are critical.

The transformation of the defence sector also has broader macroeconomic implications. Import substitution reduces foreign exchange outflows and improves the current account balance. Defence manufacturing has strong linkages with industries such as steel, electronics, heavy engineering, and software, creating multiplier effects across the economy.

The expansion of private firms and MSMEs contributes to job creation and regional industrial development. Moreover, domestic production ensures that defence spending circulates within the national economy rather than flowing outward.

Despite this progress, several structural challenges remain. India continues to depend on imports for advanced engines, high-end electronics, and critical subsystems.

Delays in procurement and project execution can increase costs and discourage private investment.

To sustain export growth, India must remain competitive in terms of quality, cost, reliability, and after-sales support. Additionally, effective coordination between the armed forces, government agencies, and industry players is essential, as misalignment can slow down progress.

India’s defence sector is now at an inflection point. The first phase of transformation focused on increasing production and reducing import dependence. The next phase must focus on achieving technological leadership, strengthening global competitiveness, and driving innovation-led growth.

This will require higher investment in research and development, stronger collaboration between academia and industry, and deeper integration into global supply chains.

The data presents a clear and consistent narrative. Defence production is rising steadily, exports are growing at an even faster pace, and policy support remains strong and targeted. More importantly, the composition of growth is changing.

Earlier, growth was largely driven by public sector output. Now, it is increasingly supported by private sector participation, export demand, and policy incentives. This shift indicates that the defence ecosystem is gradually becoming more self-sustaining rather than entirely dependent on government intervention.

Conclusion

India’s defence transformation is not a short-term trend but a structural shift. The combination of policy clarity, industrial participation, and export orientation is reshaping the sector into a more dynamic and resilient ecosystem. However, sustaining this momentum will require continued progress in technology, execution, and global competitiveness.

The trajectory is clear. India is moving from being one of the world’s largest defence importers toward becoming a credible defence manufacturing hub. The key question now is whether this capacity can be scaled into global leadership.

Data Sources

• Defence Dashboard : https://ddpdashboard.gov.in/defence-production
• https://www.pib.gov.in/PressReleasePage.aspx?PRID=2191937&lang=2®=3
• https://www.pib.gov.in/PressReleasePage.aspx?PRID=1819937®=3&lang=2
• https://www.pib.gov.in/Pressreleaseshare.aspx?PRID=1848671®=3&lang=2
• https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=2114546®=3&lang=2
• https://www.pib.gov.in/PressReleasePage.aspx?PRID=2117348®=3&lang=2
• https://static.pib.gov.in/WriteReadData/specificdocs/documents/2021/oct/doc202110411.pdf