From Dependency to Dominance: India’s Defence Sector as the New Engine of Growth

• India’s long history of reliance on foreign arms has often created operational, financial, and strategic vulnerabilities.
• By cutting reliance, India gains greater freedom to navigate multipolar geopolitics without fearing supply disruptions.
• By turning defence into an engine of jobs, technology, exports, and autonomy, India is not just preparing for wars of tomorrow—it is reshaping its economy and strategic weight on the world stage.
• According to Stockholm International Peace Research Institute (SIPRI), India’s share of global arms imports has already dipped from 11% in 2010 to 9.1 in 2015-19 and ~8% in 2020–24.

Goldman Sachs has recently initiated coverage on India’s aerospace and defence sector, highlighting what it called “a new cycle of growth for Indian defence companies.” The research projects that the domestic defence capital outlay will expand more than six-fold—from ₹1.6 trillion in FY25 to ₹10.4 trillion by FY47. At the same time, the government’s export target is set to more than double to ₹500 billion by FY29, up from ₹236 billion in FY25. Significantly, Goldman Sachs emphasised that private-sector companies are better positioned than PSUs to capture this growth, thanks to their flexibility, partnerships, and ability to scale. According to the report, the structural drivers of rising procurement budgets, deeper indigenisation, and surging exports together create the foundation for a new growth cycle in Indian defence^[1].

It is against this backdrop that India’s defence policy must be seen—not as an isolated military initiative but as a broader economic strategy. Today, the policy framework is increasingly pro-economy, designed to incentivise domestic industry, cut import bills, and generate export revenues. In other words, India’s march towards defence self-reliance is as much about strengthening the economy as it is about securing its borders.

Major Hurdles from Defence Import Dependency

India’s long history of reliance on foreign arms has often created operational, financial, and strategic vulnerabilities. Several recurring hurdles stand out:

• Delivery Delays & Cost Overruns: Major imports have consistently arrived years late and at inflated prices. Russia’s carrier Vikramaditya (delivered 2013) was five years late and cost more than double the contracted amount^[2]. France’s six Scorpene submarines (Project-75) arrived nearly a decade late and crores over budget. The additional 3 Scorpenes deal with Franch to be scrapped & replaced by German Thyssenkrupp Marine Systems^[3]. Even smaller procurements—from Israeli drones to U.S. artillery—faced multi-year slippages.
• Poor Lifecycle Support & Spares: About 60% of India’s arsenal consists of Russian-origin systems, which are criticised for having insufficient spare parts. At one point, supply delays rendered nearly half of them unusable. HAL admitted in 2024 that sourcing Su-30MKI components from Russia was “problematic.”^[4] Western vendors too often delay offset-linked production and repairs, leading to grounded fleets and deferred upgrades.
• Inadequate Technology Transfer (ToT): Despite decades of licensed production, India has rarely received full design rights. The Su-30MKI assembly line in Nashik still depends on imported Russian parts. The ambitious Kaveri jet engine resurrected in “X”, in recent times, had failed after 30 years, forcing imports of U.S. GE engines for the Tejas fighter. Most foreign ToT contracts proved superficial, keeping India trapped in a state of dependency.
• Strategic Vulnerability: Reliance on a single supplier increased threat; India’s 60% Soviet-origin arsenal experienced severe shortages following the fall of the USSR. Today, Western sanctions on Russia continue to disrupt spares and payments. Conversely, U.S. arms have been subject to political embargoes in 1974 and 1998, while the 2025 U.S. tariff dispute even led New Delhi to pause talks on Strykers and Javelins^[5]. Such disruptions reveal how foreign policy frictions can instantly affect India’s defence preparedness.
• Offset Failures: Offset policies aimed at building local industry (invest a percentage of the contract value back into the buyer’s economy) often backfired. Several foreign vendors—including Lockheed Martin, Dassault, Textron, MBDA, and Israeli firms—were fined for failing to meet offset obligations^[6]. Instead of transferring meaningful technology, OEMs often delivered minimal assembly work or delayed commitments, undermining India’s industrial goals.

All things considered, India’s decades-long reliance on imports exposed it to external pressures, operational inadequacies, and bloated budgets. Today’s vigorous indigenisation drive under Atmanirbhar Bharat and the Defence Production and Export Promotion Policy (DPEPP 2020) is entirely driven by these experiences.

The Ministry of Defence has reserved a growing share of the capital acquisition budget for domestic players—75% in FY2024–25, up from 58% in 2020–21.

From Importer to Emerging Producer

India is correcting its course after learning from these setbacks; it is recalibrating. According to Stockholm International Peace Research Institute (SIPRI), India’s share of global arms imports has already dipped from 11% in 2010 to 9.1 in 2015-19 and ~8% in 2020–24^[7] (Table).

At the same time, defence production at home hit a record ₹1.27 lakh crore in FY2023–24. Majorly due to the key reforms taken by the government in recent times.

Key reforms include:

• Positive Indigenisation Lists: Introduced in 2020 and updated periodically, these lists ban the import of certain categories of defence equipment, subsystems, and components. More than 500 items are now on the “No Import” list^[8]—ranging from basic components like spares to sophisticated platforms like drones, artillery, and radars. This forces procurement to shift towards Indian manufacturers, providing assured demand for local firms. Over time, this creates a captive domestic market that incentivises private R&D and local supply chains, while gradually reducing forex outflows.
• Procurement Budgeting: The Ministry of Defence has reserved a growing share of the capital acquisition budget for domestic players—75% in FY2024–25^[9], up from 58% in 2020–21. This means three-fourths of India’s annual new weapons spending—amounting to over ₹1.2 lakh crore in FY25—must go to Indian suppliers. This earmarking creates stability for domestic defence firms, ensures long-term order books, and de-risks the private sector’s capital investment in R&D and production facilities.

• FDI Liberalisation: In defence manufacturing, the government increased the automatic FDI limit to 74% in 2020^[10] to attract capital, technology, and know-how. This marked a major departure from the earlier 49% cap, signalling openness to foreign OEMs. Since then, global giants like Boeing, Airbus, Lockheed Martin, and Safran have expanded joint ventures in India, often in partnership with Indian Companies and PSUs. These collaborations are intended not just for assembly but also for co-development of advanced systems, giving Indian firms access to global defence supply chains.
• Corporatisation of OFB: For decades, the OFB, comprising 41 factories under the Ministry of Defence, was criticised for low productivity and lack of competitiveness. In 2021, it was corporatised into seven state-owned defence companies specialising in areas such as armoured vehicles, munitions, and troop gear^[11]. The aim is to make them function like commercial entities—with accountability, export orientation, and the ability to enter joint ventures with private/foreign firms. This reform seeks to transform OFB from a budget-dependent bureaucracy into a globally competitive industrial base.

Over the past ten years, India's defence exports have increased by about fifteen times, from ₹4.8 billion in FY15 to over ₹210 billion in FY24, with goals of ₹500 billion by FY29.

Toward a Unified Defence Ecosystem

The current state of India’s defence industry is not a zero-sum game but a symbiotic evolution. The Public Sector Undertakings (PSUs) and erstwhile Ordnance Factories continue to anchor the nation’s defence production base, maintaining critical infrastructure, long-term R&D programs, and strategic capabilities. At the same time, the private sector’s rapid rise reflects a growing industrial ecosystem that supports the public establishments rather than threatens them.

According to the Department of Defence Production (DDP), India’s total defence production reached ₹1,50,590 crore in FY 2024-25, the highest ever. Of this, the private sector contributed ₹33,979 crore (22.56%), marking its largest share since 2016–17, when it stood at around 19%.^[12]

Companies such as Tata Advanced Systems, Mahindra Defence, L&T, Bharat Forge, and Adani Defence are increasingly integrating into this ecosystem through indigenous manufacturing, partnerships, and foreign tie-ups. Key initiatives include:

• Tata Advanced Systems: JVs with Lockheed Martin, Boeing, and Sikorsky for C-130J/LM100J aircraft, AH-64 Apache fuselages, and S-92 helicopter cabins.^[13]
• Mahindra Defence: Indigenous Armoured Light Specialist Vehicles (ALSV/LSV) for the Indian Army.^[14]
• L&T: Samarthak-class Multi-Purpose Vessels for the Navy.^[15]
• Adani Defence: Acquisitions (Air Works India), JVs (Horizon Aero Solutions), and partnerships (Sparton/Elbit, EDGE UAE) for MRO, missiles, UAVs, and electronic warfare systems.

This emerging public-private equilibrium represents a clear policy success. The Defence Acquisition Procedure (DAP) 2020 incentivises indigenous manufacturing by giving preference to projects with higher Indigenous Content (IC)^[16].

Modern warfare is dominated by technology. While Defence Public Sector Undertakings (DPSUs) maintain a vital role in core, sensitive programmes, the private sector is better positioned to aggressively invest in frontier technologies like Artificial Intelligence (AI), quantum computing, drone swarms, and cyber systems. PSUs provide the institutional backbone, while private players bring innovation, flexibility, and global collaboration, together creating a unified defence ecosystem capable of advancing India’s long-term vision of Aatmanirbharat in defence. Indigenisation enhances strategic autonomy. Russia’s war in Ukraine, U.S. sanctions threats (CAATSA), and payment blockages exposed the risks of dependency. By cutting reliance, India gains greater freedom to navigate multipolar geopolitics without fearing supply disruptions. Prime Minister Modi, in his decisive address to the nation on the 79^th Independence Day, said, “Dependence on others raises questions about a nation’s independence. It is unfortunate when dependence becomes a habit, a dangerous one. That’s why we must remain aware and committed to becoming self-reliant. Self-reliance is not just about exports, imports, the rupee, or the dollar. It is about our capabilities, our strength to stand on our own.”^[17]

While since the 2000s, governments’ efforts to privatise the defence sector largely remained on paper, the intent is now translating into concrete action, reflecting both policy continuity and strategic execution.

Exports as Economic and Diplomatic Leverage

Over the past ten years, India’s defence exports have increased by about fifteen times, from ₹4.8 billion in FY15 to over ₹210 billion in FY24^[18], with goals of ₹500 billion by FY29. Due to its rapid growth, from being the world’s largest importer of weapons to being a major exporter, India’s defence posture has undergone a structural shift.

Economically speaking, the defence trade produces foreign exchange profits, reduces the defence trade deficit, and establishes economies of scale that lower the cost of systems purchased domestically. Export orders encourage private companies to invest in R&D, international certifications, and advanced production skills by diversifying their revenue streams outside MoD contracts. The advantages are felt throughout the supply chain, as component makers and MSMEs raise standards to satisfy global norms. When taken as a whole, this improves competitiveness in the civil and defence sectors and fortifies India’s industrial ecosystem.

Diplomatically, defence exports have become a pivotal tool of India’s strategic influence. Significant sales that improve India’s reputation as a trustworthy security partner include BrahMos missiles to the Philippines, a $375 million deal for India, and patrol boats to Indian Ocean nations. India’s role as an indirect security supplier in the Indo-Pacific is strengthened by its ability to project power without direct military action by providing friendly countries with economical UAVs, artillery, and helicopters. These exports establish enduring alliances that pave the way for more extensive defence cooperation, cooperative drills, and technological partnerships.

However, challenges exist in safeguarding sensitive technologies, balancing export demands with domestic needs, and competing against established exporters like the US, Russia, and France. Learning from countries such as South Korea and Turkey, which have turned defence exports into major economic and diplomatic assets, India seeks to build a model that blends economic efficiency with long-term trust-building. This dual focus underscores India’s ambition to use defence exports as both an economic multiplier and a diplomatic lever.

Hence, India must adopt a hybrid model, where domestic self-sufficiency is combined with targeted export growth.

Future Outlook

India’s defence sector is projected to hit a $25B turnover by 2029–30, with exports worth $5B. As Goldman Sachs’ forecast of ₹10.4 trillion defence capital outlay by FY47 suggests sustained domestic demand. Defence may evolve from a fiscal burden into a growth engine contributing 4–5% of GDP by 2047.

The tough lessons learned from imports are driving India’s defence transformation almost as much as structural policy reforms. Self-reliance became essential due to persistent delays, exorbitant expenses, and suppliers being denied access to technology. Today, India is presenting defence as a strategic shield and an economic tool, supported by growing budgets, private sector involvement, and export aspirations.

By turning defence into an engine of jobs, technology, exports, and autonomy, India is not just preparing for wars of tomorrow—it is reshaping its economy and strategic weight on the world stage.

References:

• _{[1] https://www.financialexpress.com/market/goldman-sachs-top-defence-picks-solar-industries-ptc-industries-astra-microwave-data-patterns-azad-eng-bel-hal-bdl-3997353/}
• _{[2] https://timesofindia.indiatimes.com/india/after-5-year-delay-navy-gets-ins-vikramaditya/articleshow/25911949.cms}
• _{[3] https://economictimes.indiatimes.com/news/defence/french-out-german-in-india-plans-to-scrap-additional-scorpene-submarine-order-may-pick-thyssenkrupp-as-partner/articleshow/124549514.cms?from=mdr}
• _{[4] https://www.flightglobal.com/fixed-wing/hal-chief-focuses-on-key-programmes-as-company-evolves-for-new-niche/163650.article}
• _{[5] https://www.reuters.com/business/aerospace-defense/india-pauses-plans-buy-us-arms-after-trumps-tariffs-2025-08-08/}
• _{[6] https://www.newindianexpress.com/nation/2022/May/10/row-over-offset-commitments-global-defence-biggies-to-face-governments-wrath-2452119.html}
• [7] _{https://www.sipri.org/sites/default/files/2025-03/fs_2503_at_2024_0.pdf}
• _{[8] https://www.thehindu.com/news/national/mod-notifies-fifth-positive-indigenisation-list-for-dpsus/article68410528.ece}
• _{[9] https://sansad.in/getFile/lsscommittee/Defence/18_Defence_3.pdf?source=loksabhadocs}
• _{[10] https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=2004475}
• _{[11] https://www.pib.gov.in/Pressreleaseshare.aspx?PRID=1776096}
• _{[12] https://www.thehindu.com/news/national/private-sector-share-in-defence-production-hits-record-2256-in-fy-2024-25/article69952036.ece}
• _{[13] https://www.tataadvancedsystems.com/joint-ventures}
• _{[14] https://www.mahindraarmored.com/vehicle-category/special-purpose-armoured-vehicles/armoured-light-specialist-vehicle}
• _{[15] https://www.larsentoubro.com/pressreleases/2024-10-14-lt-launches-multi-purpose-vessel-for-indian-navy/}
• _{[16] https://www.makeinindia.com/defense-acquisition-procedure}
• _{[17] https://www.pib.gov.in/PressReleasePage.aspx?PRID=2156736privatisegovernments’2000s}
• _{[18] https://economictimes.indiatimes.com/news/defence/global-shift-towards-china1-and-russia-ukraine-war-open-doors-for-indias-defence-sector-report/articleshow/113080822.cms?from=mdr}

Sughosh Joshi

Sughosh Joshi is a CA Finalist and B.Com graduate with a strong interest in economics, geopolitics, and the analysis of international affairs, particularly those impacting India. Views expressed are the author’s own.