Monday 28 / April / 2025
New Delhi: It is no coincidence that India has attained maturity in international affairs and in defence manufacturing with an export orientation almost simultaneously.
This is an important facet of India’s development as a nation and reflects the priorities accorded by the current government to defence industry with a focus on the ‘Atmanirbhar Bharat’ programme.
According to official estimates, Defence exports crossed an all-time high of ₹16,000 crore in FY2022-23, around ₹3,000 crore more than the last fiscal year.
India exported to more than 85 countries, and currently, 100 Indian firms have exported products, which include the Dornier-228 aircraft, 155 mm Advanced Towed Artillery Guns, Brahmos Missiles, Akash Missile System, radars and simulators, among others.
The demand for LCA-Tejas, light combat helicopters, aircraft carrier, MRO activities, etc., has also grown.
The significant thing is that exports of defence equipment are being driven by over 50 private sector companies. They are leading in defence exports, which have grown from Rs 1,500 crore in the financial year 2017 to Rs 15,900 crore in the FY 2023.
The proportion of defence production turnover has increased from 2% in FY 2017 to 15% in FY 2023. India looks to achieve Rs 35,000 crore defence exports by the FY 2026. This is an ambitious target and will add to the nation’s industrial base and strengthen the economy. Some of the major export destinations for defence products have been Italy, Maldives, Sri Lanka, Russia, France, Nepal, Mauritius, Sri Lanka, Israel, Egypt, UAE, Bhutan, Ethiopia, Saudi Arabia, Philippines, Poland, Spain, and Chile.
One of the other factors that is responsible for India ramping up its defence production is rising defence spending amongst countries in the Middle East and in East Europe. In Asia alone, defence spending has risen by 10% over the past decade, driven by economic growth, territorial disputes, and political tensions.
Globally, defence spending has averaged 2.3% of GDP over the last 25 years. A recent Axis Capital report suggests that ongoing geopolitical conflicts will influence defence spending and trade relationships.
India currently has 16 defence public sector undertakings, with seven listed, accounting for over 70% of the country’s defence production.
The Axis Capital report anticipates that India’s defence expenditure will grow at an annual rate of 12%, reaching US$147 billion between 2025 and 2029. However, the current boom in defence industry is because of the government’s focus on import substitution, indigenisation, and propelling export growth has significantly boosted the defence industry, leading to a 15% Compound Annual Growth Rate (CAGR) in the turnover of India’s defence industry.
Enhanced defence manufacturing capacity, coupled with a more liberal export regulatory framework, has helped India carve a niche for itself in defence exports.
Factors like local procurement, liberalised FDI norms, R&D support, and time-bound import embargoes have further enhanced indigenisation.
This is best exemplified by the successful development of indigenous systems like the BrahMos missiles and Akash air defence systems, which have been sold to a few friendly nations.
Notably, there has been a 23-fold increase in exports, and Indian design and development capabilities are now reaching worldwide. The country is actively seeking new markets in friendly nations and aims to establish long-lasting relationships in military hardware. Indian defence firms are increasingly competing with global firms in various markets, including Southeast Asia and Africa.
In 2023, India had the fourth largest defence budget at US$72.6 billion, behind the United States (US$877 billion), China (US$292 billion), and Russia (US$86.4 billion). Defence spending globally stood at US$2240 billion, with the US, Russia, France, China, Germany, and Italy collectively responsible for 80% of defence spending.
Asia and Oceania accounted for 70% of imports. Despite improved defence spending, India remains a leading global arms importer, not featuring in the top 20 arms exporters. Data from the Stockholm Peace Research Institute (SIPRI) shows that India’s share of global arms imports was 13% between 2013-2017 and 11% between 2018-2022.
Indian defence industry has traditionally been dominated by the public sector. Thus far, bureaucracy and complex regulations prevented the private sector from operating at an optimal level on defence manufacturing, particularly with a focus on exports.
This created conditions for a reliance on arms imports. Over the years, there the felt need for reform of the public sector undertaking has gained ground. With the government increasingly prioritising private sector involvement in defence manufacturing and innovation, thought needs to be given to how the public sector can be drawn into this competitive market geared towards international sales.
Private sector firms are expected to receive defence contracts worth Rs 60,000 crore in the FY 2024-2025, making up about 22% of the industry’s overall size.
There is no doubt that India is today better positioned for indigenous arms production and prepared to export its weapons and equipment.
While it has the financial capacity to support a relatively autonomous defence industrial base, lessons learnt from current sales worldwide should drive the process for preparing a future plan to develop India as a credible arms industry, one that is respected by global players.
Despite recent advances, India’s defence industry has some way to go.Unresolved problems such as existence of a fragmented market with multiple small and medium-sized enterprises, the lack of effective coordination between the public and private sector, shortage of skilled labour, and stringent regulatory requirements continue to plague successful forward movement.
While India’s growing defence cooperation with friendly countries have significantly expanded in recent years and reached a new level of cooperation that include high-level visits, joint military exercises, and training, India’s arms exports have added new dimensions to this evolving defence cooperation. This strategic dimension of India’s defence exports should not be missed in the overall calculus.
