Defense & Security
Reforging The Arsenal: India's Defence Industry Transformation
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by Darshit Thakar
First Published in: Nov.14,2025
Nov.14, 2025
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India is the fastest-growing major economy in the world, and according to the Global Firepower Index, the Indian Armed Forces are the 4th strongest in the world. But when we look at SIPRI data, we can find that since 2011, India has been the largest defence equipment importer in the world. If we look at India's neighborhood, it's been very hostile since Independence. India fought four major wars with Pakistan — 1948, 65, 71, and 99 — and many skirmishes, Operation Sindoor being the most recent one. With China, it fought a war in 1962 and many skirmishes, the most recent one in Galwan valley in the early 2020s. This kind of environment, and India being a rising global power, demands it to have some self-sufficiency in weapons manufacturing.
A Brief History of Defence Policy
At Independence, India enjoyed an early advantage over non-western states. India was the crown jewel of the British Empire, and to sustain control over it, Britain established lots of arms factories. But when India got independence, everything changed. Jawaharlal Nehru was sworn in as the first Prime Minister. He was a member of the Fabian Society and strongly believed in socialism, so he got everything centralized and worked in similar way as the Soviet Union. There was private participation, but it was limited to only small-scale industries. Defence was the government arena. There were DRDO (Defence Research and Development Organisation), DPSUs (Defence Public Sector Undertakings), and Ordnance Factories. DRDO was responsible for designing, the DPSUs made complex weapon systems, while Ordnance Factories made ammunition, firearms, artillery shells, etc. However, this highly centralised socialist model, though well-intentioned, restricted the flexibility to build upon the industrial base India had inherited from the British era.
In 1991, India initiated LPG (Liberalisation, Privatisation, and Globalisation) reforms to liberalize the economy. Private players were allowed in the defence sector from 2001 onwards, but there wasn't a lot of momentum for the next 15 years. Momentum began to rise only after 2014 when reforms and policy incentives actively encouraged private participation.
Current Reforms
Since assuming power in 2014, Prime Minister Narendra Modi’s government has made a determined attempt to strengthen the Indian arms industry and transform the country’s image from the world’s largest arms importer to a major exporter of defence equipment. To realize this goal, the government has announced many reform measures under the ‘Make in India’ initiative and ‘Atmanirbhar Bharat Abhiyan’ (self-reliant India mission). These measures cover virtually every facet of the Indian defence economy, spanning structures, acquisition processes, industrial regulations, and budgetary provisions.
During the 1999 Kargil War and 2001 Operation Parakram, India found operational constraints, and there was a recommendation to create a Chief of Defence Staff (CDS) who would function as the head of all three services. In 2019, the government created the post of Chief of Defence Staff (CDS), which is touted as the most significant defence reform since Independence. Among all the responsibilities, the CDS is also assigned the task of “promoting the use of indigenous equipment by the Services.” The Department of Military Affairs (DMA), which works under the guidance of the CDS, made a list of 500 pieces of equipment that should be produced indigenously. These lists include several big-ticket items such as missiles, fighter aircraft, helicopters, warships, radars, and a range of munitions. The government also announced the long-overdue corporatisation of the OFs that were earlier functioning as government arsenals. The decision involved converting 41 OFs into seven distinct DPSUs. As corporate entities, the new DPSUs will enjoy greater autonomy in decision-making and be accountable for their performance. However, while corporatisation has begun to improve accountability, the impact of these changes is still uneven, and many DPSUs continue to face legacy inefficiencies.
As the government wanted to increase the acquisition of arms made in India, it announced the Defence Procurement Procedure (DPP) in 2016. The DPP-2016 emphasized indigenisation by giving primacy to the domestic industry over foreign contractors. It also made an attempt to decrease procurement timelines and increase the overall effectiveness of the procurement process. To enhance the role of the private sector in defence production, the DPP-2016 also simplified the ‘Make’ procedure and created space for new Strategic Partnership (SP) guidelines, which were separately released in 2017.
In 2020, the government announced the Defence Acquisition Procedure (DAP). Building on the DPP-2016, the DAP-2020 focused on higher levels of indigenisation and innovation through the participation of Indian industry, including startups and small and medium enterprises. New outfits like the Innovations for Defence Excellence (iDEX) and the Defence Innovation Organisation (DIO) have been created to encourage start-ups and micro, small and medium enterprises (MSMEs) to promote defence industrialisation.
The government has also introduced several measures to improve the ease of doing business in the defence manufacturing sector. It streamlined the industrial licensing process for the private sector. It also focused on liberalising the defence foreign direct investment (FDI) regime by enhancing the earlier foreign equity cap from a maximum of 26 percent under the automatic route, first to 49 percent and subsequently to 74 percent. The government has also brought out a standard operating procedure to formalise the process of defence export authorisation; allowed the private sector to use government-run facilities to test their equipment; launched two defence industrial corridors; and created a dedicated web portal, SRIJAN, so that the DPSUs and the armed forces can upload previously imported items for indigenisation by domestic entities.
Impact of the Policy
Following several reforms, the defence industry has made certain progress. The most visible indicator of this progress is the near-continuous increase in production turnover. The value of defence production has surged to a record high of ₹1,27,434 crore (~$15.2 billion), marking an impressive 174% increase from ₹46,429 crore in 2014-15, according to data from all Defence Public Sector Undertakings (DPSUs), other public sector units manufacturing defence items, and private companies. The Ministry of Defence has signed a record 193 contracts in 2024-25, with the total contract value surpassing ₹2,09,050 crore (~$24.8 billion), nearly double the previous highest figure. Of these, 177 contracts, accounting for 92 percent, have been awarded to the domestic industry, amounting to ₹1,68,922 crore (~$20.1 billion), which is 81 percent of the total contract value.
Defence exports have surged from ₹686 crore in FY 2013-14 to an all-time high of ₹23,622 crore (~$2.76 billion) in FY 2024-25, marking a 34-fold increase over the past decade. India is now exporting arms, ammunition, and related items to over 85 countries, with 100 Indian firms participating in international sales. Some of the major items exported include “Dornier-228, 155 mm Advanced Towed Artillery Guns, BrahMos Missiles, Akash Missile System, Radars, Simulators, Mine Protected Vehicles, Armoured Vehicles, PINAKA Rockets & Launchers, Ammunitions, Thermal Imagers, Body Armours, besides Systems, Line Replaceable Units and Parts & components of Avionics and Small Arms.”
Challenges
Even though India has made noticeable progress, challenges still persist. According to SIPRI, in 2011 India was responsible for 14% of global arms imports — making it the largest importer. Fast forward to 2024, it still accounts for 8.3% of global arms imports — the second largest, just behind war-torn Ukraine. While this decline in share indicates progress, the absolute value of imports remains high due to India’s expanding defence budget and modernisation drive. Even though the industry has grown, it hasn't fully absorbed the appetite for equipment required by the armed forces.
On the export front, despite registering a noticeable increase in international arms sales, the industry is far from the target set by the government. The biggest challenge in meeting the government’s export target comes from the DPSUs, which have been rising slowly to the expectations. Some recent attempts to export major systems have not met with success. It faces tough competition from countries like Turkey (~$7.2 billion in defence exports for 2024), South Korea (~$20 billion in defence exports for 2024) and Israel(~$14.8 billion in 2024).
The Indian defence industry, despite having a large production and R&D base, lacks the technological depth to design/manufacture major systems and critical parts, components, and raw materials, which are eventually imported. Moreover, the reforms announced by the Modi Government haven't been implemented fully. Given India’s bureaucratic system, overcoming the delays in implementation will remain a key challenge in the foreseeable future.
Global Parallels in Defence Industrialisation
India's transition from a state-dominated, import-reliant defence ecosystem to a more hybrid, self-reliant model invites comparisons with other emerging powers that have successfully navigated similar paths.
South Korea offers a stark contrast through its aggressive export-oriented strategy: starting in the 1970s amid threats from North Korea, Seoul invested heavily in R&D (allocating over 4% of GDP annually in recent years) and leveraged chaebol conglomerates like Hyundai and Hanwha to build integrated supply chains, transforming from an importer to a top-10 global exporter with $20 billion in annual sales by 2024, including K9 howitzers and T-50 trainers.
Turkey, facing NATO dependencies and regional instabilities, adopted agile policies under its Defence Industry Agency (SSB), mandating high domestic content (up to 70% in major programs) and integrating SMEs via incentives and technology transfers, propelling exports to $7.2 billion in 2024 through platforms like Bayraktar drones.
Israel, constrained by size and hostile neighbors, pioneered a niche innovation ecosystem via public-private partnerships, mandatory military service feeding talent into firms like Rafael and IAI, and venture capital-driven R&D, yielding $14.8 billion in exports focused on high-tech systems such as Iron Dome.
Unlike India's historically centralized DPSUs and gradual private inclusion, these models emphasize export discipline, rapid policy iteration, and SME/startup ecosystems—lessons India could adapt by accelerating iDEX funding, enforcing stricter local content in DAP procurements, and fostering chaebol-like consortia to bridge technological gaps and compete globally.
Conclusion
The Narendra Modi government has sought to break the inertia of snail-like defence reforms that were going on since India's Independence. Under the banner of Atmanirbhar Bharat, it has pushed to cut imports and boost local production. Defence exports have begun to grow. More importantly, private companies and start-ups have entered what was once a tightly guarded public sector preserve. A more competitive ecosystem is slowly taking shape. Yet the road to self-reliance remains long. If India can integrate private innovation with public manufacturing and reduce bureaucratic delays, it could transform from being the world’s largest importer to a key global supplier in the multipolar era.
Sources
https://www.orfonline.org/research/india-s-defence-industry-achievements-and-challenges
https://www.orfonline.org/research/a-decade-of-defence-reforms-under-modi
https://www.pib.gov.in/PressReleasePage.aspx?PRID=2116612
https://indiasworld.in/reforming-defence-production-faster-and-deeper/
https://www.pib.gov.in/PressNoteDetails.aspx?NoteId=154617&ModuleId=3
First published in :
World & New World Journal
Darshit Thakar
Dr. Darshit Thakar is currently pursuing higher education in the field of Medicine. His academic and intellectual interests are not limited to field of Healthcare but extend to International relations, Economics, Philosophy, Mythology, Polity and History. He writes in local newspaper where he provides analytical columns on global affairs, healthcare policy and social development. His work reflects a multidisciplinary approach that integrates knowledge of different disciplines.
