Build a Competitive and Self-Reliant Defence Industry

India is one of the world’s largest military powers and defence spenders, yet it continues to depend significantly on foreign suppliers for major weapons and critical defence technologies.

In 2025, India spent an estimated $92.1 billion on its military, making it the world’s fifth-largest military spender.

At the same time, India was the world’s second-largest importer of major arms during 2021–25, accounting for 8.2% of global major-arms imports. Russia supplied 40% of India’s imports during this period, France 29% and Israel 15%. Stockholm International Peace Research Institute (SIPRI) also notes that India’s imports declined only 4% compared with 2016–20 despite the expansion of domestic production.

This does not mean India should stop importing defence equipment. Access to the best available technology and strategic international partnerships will remain important. But long-term dependence on foreign countries for critical military capabilities creates strategic vulnerability, exposes India to supply disruptions and limits the development of domestic technological capability.

India has made substantial progress. Domestic defence production reached a record ₹1.78 lakh crore in FY2025–26, more than twice its FY2020–21 level. But approximately 76% of that production came from Defence Public Sector Undertakings (DPSUs) and other public-sector enterprises, while the private sector contributed 24%.

India therefore faces two related challenges: reduce dependence on foreign defence suppliers while simultaneously creating genuine competition within India’s domestic defence industry.

The objective should not simply be to replace foreign suppliers with protected government-owned manufacturers. It should be to build an Indian defence industry capable of competing on technology, quality, cost, innovation and delivery.

India should establish a ten-year strategy to build a competitive, technologically capable, and increasingly self-reliant defence-industrial base.

Move Toward 90% Domestic Capital Procurement

India should establish a long-term objective of sourcing at least 90% of capital acquisitions from domestic industry within ten years, where technologically and strategically feasible.

This would build on progress already underway. In FY2026–27, the government has earmarked ₹1.39 lakh crore, or approximately 75% of the capital-acquisition budget, for domestic defence industries.

The transition from 75% toward 90% should not become an artificial localization requirement.

India should continue importing equipment when foreign procurement provides an important technological or strategic advantage. The greater priority should be reducing dependence on foreign suppliers for capabilities that would be difficult to replace during a conflict.

India should therefore separately identify and track dependence on critical technologies, components and supply chains, rather than measuring self-reliance only by the percentage of procurement occurring domestically.

Create Genuine Competition Between Public and Private Companies

Domestic procurement should not automatically mean procurement from government-owned companies.

DPSUs, established private manufacturers, MSMEs and startups should increasingly compete for defence contracts under comparable rules wherever national-security requirements permit.

Contracts should be awarded based on clearly defined criteria including operational capability, technology, domestic value addition, cost, reliability and delivery performance.

Government ownership should neither guarantee a contract nor prevent a capable public company from winning one.

Reassess Government Ownership of Defence Companies

India should undertake an independent strategic and commercial review of its defence public-sector companies.

Government ownership should be retained where there is a compelling national-security reason—for example, where an enterprise controls a strategically indispensable capability that cannot reasonably be entrusted to a competitive market.

But government ownership should not continue indefinitely simply because an enterprise has historically been government-owned.

DPSUs operating primarily in commercially contestable areas should be evaluated against domestic and international competitors on technology, product competitiveness, cost, quality, innovation and delivery performance.

Companies that remain competitive should be allowed to grow and compete globally.

Companies that consistently fail to develop competitive products despite decades of government support should become candidates for restructuring, strategic sale, partial or full divestment, merger, or closure, depending on strategic requirements.

Where there is no compelling national-security reason for continued government ownership, the government should progressively divest its ownership through transparent processes and allow the enterprise to compete as a commercially accountable company.

The principle should be:

Government should own a defence manufacturer only when national security provides a compelling reason for government ownership.

Allow Private Companies to Become Prime Defence Contractors

Private companies should not be confined to supplying components to DPSUs.

Qualified Indian companies should be able to become prime contractors and system integrators for major aircraft, naval, land, missile, electronic, drone and other defence programs where they demonstrate the necessary technological, financial and security capabilities.

Long-term visibility into India’s capability requirements would allow companies to invest in factories, engineering talent, research and supply chains before procurement begins.

Competition among multiple capable Indian prime contractors would also reduce dependence on any single public or private supplier.

Create a Fast Path From Defence Innovation to Procurement

India’s defence startups and MSMEs need a clearer route from developing technology to receiving meaningful production orders.

Promising technologies should move through a defined pathway:

Military Requirement → Competitive Development → Prototype → Testing → Procurement → Large-Scale Production

Government should fund competing approaches to important technological problems rather than prematurely selecting a single supplier.

Successful startups should be able to grow into major defence companies rather than remain permanently dependent on established DPSUs or large private contractors.

Use Foreign Partnerships to Acquire Capability, Not Dependence

India should continue partnering with leading international defence companies when doing so provides access to technologies or capabilities India does not yet possess.

But major international partnerships should increasingly be evaluated on whether they strengthen Indian capabilities through technology transfer, engineering expertise, intellectual property, domestic manufacturing, component ecosystems and participation in global supply chains.

Strategic autonomy should not mean manufacturing every component domestically regardless of cost.

It should mean that India cannot be denied the critical capabilities necessary to defend itself.

Publish a Defence Industrial Competitiveness Scorecard

India should publish annual non-sensitive indicators measuring:

– share of capital procurement sourced domestically;
– dependence on critical imported technologies and components;
– public- and private-sector shares of defence production;
– number of competitive bids for major programs;
– cost and schedule performance;
– domestic value addition;
– technologies moving from R&D into production;
– defence exports; and
– Indian participation in international defence supply chains.

The objective should not merely be spending more money domestically. It should be building an industry capable of producing globally competitive defence technology.

India already has evidence that its defence-industrial base can expand rapidly.

Domestic defence production increased from ₹84,643 crore in FY2020–21 to ₹1.78 lakh crore in FY2025–26, while defence exports reached a record ₹38,424 crore. The private sector accounted for about 24% of domestic production but approximately 45% of defence exports in FY2025–26, demonstrating that private Indian companies can already play a significant role in internationally competitive defence manufacturing.

The United States provides a useful example of a competitive defence-industrial model. The U.S. government determines national-security requirements, funds defence procurement and maintains extensive regulatory and security oversight, but much of the design and production of military equipment is undertaken by competing private defence companies.

Companies compete for major military programs, invest in research and manufacturing capabilities, operate extensive private supply chains and serve as prime contractors responsible for complex defence systems. Government remains the customer and strategic authority without needing to own the companies that manufacture most of its military equipment.

India does not need to replicate the American system. It can adopt the underlying principle:

Government determines the capability the military needs. Competing companies determine the best way to deliver it.

China provides a different but relevant lesson. Its declining dependence on imported major weapons demonstrates how developing domestic technological and manufacturing capabilities can reduce strategic reliance on foreign suppliers. India should pursue that objective through its own model—one that combines strategic government oversight with substantially greater competition among public companies, private manufacturers and startups.

This combination can create stronger incentives for innovation, cost control, timely delivery and technological development while preserving government control over national-security requirements.

The objective is not privatization for its own sake, nor domestic manufacturing for its own sake. It is military capability, strategic independence and value for public money.

India should decide what defence capabilities it must control. Competition should determine who is best able to build them.