In order to reduce dependence on imports of defence equipment, the government has introduced a number of measures to promote private investments in the sector.

Private sector firms are likely to get defence contracts worth Rs 60,000 crore in the financial year 2024-2025, which will be around 22 per cent of the overall size of the industry, a private research report showed. According to a report by ICRA, defence production by private companies is estimated to register compound annual growth of around 20 per cent in the next three years to reach Rs. 34,000 crore by FY2026.

In order to reduce dependence on imports of defence equipment, the government has introduced a number of measures to promote private investments in the sector.

“While the land and information & communications technology (ICT)-based segments are expected to witness increased private sector participation, the Defence public sector undertakings would continue their dominance in the naval, aerospace and armaments segments,” said Ashish Modani, Vice President and Co Group Head, ICRA.

Despite a healthy 20 per cent projected annual growth in defence production by the private sector over the next three years, the government is likely to fall short of the Rs 1.75 lakh crore annual defence production target by FY2025. It is estimated to reach Rs 1.6 lakh crore by FY2026.  

The initiatives taken by the government include allowing 74 per cent foreign direct investment (FDI) in the sector through automatic route. It will encourage foreign original equipment manufacturer to set up manufacturing facilities in India.

The other initiatives include establishment of two Defence industrial corridors, one each in Uttar Pradesh and Tamil Nadu; launch of the indigenisation portal (SRIJAN), enabling all stakeholders and private vendors to interact with each other and the Indian vendors to identify the items which are within their capabilities, thus reducing the need for import.

The policy initiatives have led to reduction in procurement from foreign vendors to 32 per cent in FY2023 from 61 per cent in FY2008. India defence exports jumped to Rs 15,920 crore in FY 2022-23 from a low Rs 1,521 crore in FY 2016-17, registering an average annual growth of 48 per cent,
Modani said.

Defence Industrial Corridors in India

• India is among the top 5 military spenders and one of the emerging defence manufacturing hubs in the world. To support the growth of the Defence sector and enhance manufacturing capacity in the sector, two Defence Industrial Corridors are being set up in India, one in Uttar Pradesh and another in Tamil Nadu.
• Promoting Make in India, the Defence Industrial Corridors will catalyse indigenous production of defence and aerospace-related items. This will reduce our imports and promote the export of these items to other countries.
• The combined efforts of the Government and private players will help achieve India’s goal of self-reliance in defence, generate direct and indirect employment opportunities and spur the growth of private domestic manufacturers, Micro Small and Medium Enterprises (MSMEs) and Star-ups.