Defence Manufacturing

  • The Indian Defence sector, the second largest armed force is at the cusp of revolution. The Government has identified the Defence and Aerospace sector as a focus area for the ‘Aatmanirbhar Bharat’ or Self-Reliant India initiative, with a formidable push on the establishment of indigenous manufacturing infrastructure supported by a requisite research and development ecosystem. 
  • India is positioned as the 3rd largest military spender in the world, with its defence budget accounting for 2.15% of the country’s total GDP.*
  • GOI aims to achieve a turnover of USD 25 Bn including export of USD 5 Bn in Aerospace and Defence goods and services by 2025.
  • Government has established 2 Defence Industrial Corridors in Uttar Pradesh and Tamil Nadu.
  • The value of defence exports during the financial year 2021-22 has been INR 12,815 crore.* 
Reasons to Invest
  • GOI has approved the continuation of the Central Sector Umbrella Scheme of “Border Infrastructure and Management” (BIM) over the 15th Finance Commission Cycle from 2021-22 to 2025-26, at a cost of INR 13,020 crore to strengthen the border infrastructure for improving border management, policing and guarding the borders.
  • Indian Army unveils Six new ‘Make-II Projects’ spanning technologies across unmanned systems, technologies to counter such systems as well as emerging solutions for augmenting air defence capabilities.
  • DPP focuses on institutionalising, streamlining and simplifying defence procurement procedure to give a boost to “Make in India” initiative. It aims to promote indigenous design, development and manufacturing of defence equipment, platforms, systems and sub-systems. It also aims to enhance the role of MSMEs in the Defence industry.
  • Indian Navy is focused on incorporation of Artificial Intelligence (AI) and Machine Learning (ML) in critical mission areas. 
  • GOI has planned replacement of aircraft fleet of the defence forces including Cheetah and Chetak helicopters with Naval Utility Helicopter, indigenous Light Utility Helicopter (LUH) manufactured by HAL under “Buy (Indian-IDDM)” project and Russian built Ka-226T as “Buy & Make (Indian)”.
  • The vision of the government is to achieve a turnover of USD 25 bn including export of Usd 5 bn in Aerospace and Defence goods and services by 2025.*
  • 25 % of defence R&D budget has been earmarked for private industry and start-ups which will pave the way for innovation of new defence technologies in India.
  • Enhancement of funding under the Technology Development Fund (TDF) scheme of the Ministry of Defence to INR 50 crore per project from INR 10 crore.*
  • In 2021-22 Defence exports from India reached USD1.59 bn i.e., about INR 13,000 crore. And in the coming time, Government of India has set a target to reach USD 5 bn i.e., INR 40,000 crore.*

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Key Achievements
  • Border Roads Organisation (BRO) is recognised with the Guinness World record for the achievement of constructing and black topping the world’s highest motorable road at 19,024 feet at Umlingla Pass in Ladakh.
  • DRDO & Indian Army successfully conduct six flight-tests of Quick Reaction Surface to Air Missile system off Odisha coast.*
  • Prime Minister commissions India’s first indigenous aircraft carrier INS Vikrant in Kochi.*
  • Defence exports of the country has grown by 334 per cent in the last five years and is exported to 75 countries. 
  • 72 items out of total of 214 have been indigenised by Defence Public Sector Undertakings (DPSUs) well before their original indigenisation timelines.*
  • DRDO developed supersonic missile assisted torpedo system which was successfully launched from Wheeler Island in Odisha.
  • BRO has completed excavation of 500 m long Nechiphu tunnel cutting through the foggiest stretches.*
  • The Nation’s pride, the visionary project of Atal Tunnel that runs under the ‘Rohtang Pass’ was constructed on the Manali - Leh Highway under the challenging conditions of freezing temperatures in extremely difficult terrain, has officially been certified by World Book of Records, as the ‘World’s Longest Highway Tunnel above 10,000 Feet’. 
  • A successful training launch of a Short-Range Ballistic Missile, Prithvi-II was successfully carried out. The missile is a proven system and is capable of striking targets with a very high degree of precision.*
  • Indigenously-developed Laser-Guided ATGM successfully tested by DRDO & Indian Army.*
  • 835 Squadron (CG), an indigenous Advanced Light Helicopter (ALH) MK III squadron, was commissioned into Indian Coast Guard at its Air Enclave in Porbandar, Gujarat. The commissioning of this squadron marks a tremendous leap towards self-reliance in the field of Search and Rescue (SAR) and maritime surveillance. *
  • Centre of Excellence on Satellite & Unmanned Remote Vehicle Initiative (CoE-SURVEI) has developed an Artificial Intelligence-based software which can automatically detect change on ground, including unauthorised constructions and encroachments in a time series using Satellite Imagery. *
  • The fourth phase of Sea Trials for IAC has been successfully completed. The Indigenous design and construction of Aircraft Carrier has led to growth in indigenous design and construction capabilities, besides development of large number of ancillary industries, with employment opportunities for over 2000 CSL personnel and about 12000 employees in ancillary industries. *
  • Keel laid for first warship of ASW SWC Project being constructed at CSL, Kochi.*
  • DRDO successfully test fires indigenously developed laser-guided ATGMs.*
Recent Announcements

25th November 2022: Delivery of the Second Ship of Project 15B Y 12705 (Mormugao).

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24th November 2022: India carries out successful training launch of Intermediate Range Ballistic Missile, Agni-3 from APJ Abdul Kalam Island.

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16th November 2022: In order to achieve reduction in carbon footprint and in keeping with the Gol's initiative on introduction of green mobility, IAF has inducted a fleet of Tata Nexon Electric Vehicles.

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10th November 2022: Defence exports touch INR 8,000 crore in H1 as sector gains from Make in India.

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9th November 2022: Testing & evaluation facility for Sonar Systems of Indian Navy launched by DRDO.

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  • With Government initiatives, the expenditure on defence procurement from foreign sources which used to be 46% of the overall expenditure has reduced to 36% in the last four years i.e. 2018-19 to 2021-22.*
  • Defence exports grew by 334% in last five years; India now exporting to over 75 countries due to collaborative efforts.
  • In 2020-2021, keeping with the Atamnirbhar Bharat 74% of contracts by Army were awarded to Indian Vendors which is praise worthy.
  • India has around 194 defence tech startups building innovative tech solutions to empower and support the country’s defence efforts. *
  • The nodal agency for Uttar Pradesh Defence Industrial Corridor (UPDIC) has signed 69 MoUs with industry with potential investment of INR 10,545 crore. Actual Investment of INR 1,767 crore has been made by the industries in UPDIC.*
  • The  nodal agency for Tamil Nadu Defence Industrial Corridor (TNDIC) has arranged investment worth potential of INR 11,359 crore through MoUs etc. with 42 industries. Actual Investment worth INR 3,176 crore has been made by the industries in TNDIC.*
  • Defence exports have crossed INR 13,000 crore. Governemt of India has set a target of INR 1.75 lakh crore of defence production by 2025, which includes export of INR 35,000 crore.
Growth Drivers
  • Shri Rajnath Singh approves 3rd Positive Indigenisation List of 780 strategically important Line Replacement Units/Sub-systems/Components.*
  • CoE – SURVEI issues draft concept on standardizes Drone images for land Survey.*
  • The Army Design Bureau on behalf of the Indian Army has signed a MoU with the Drone Federation of India to collaboratively work towards promoting research, development, testing and manufacturing of drones, counter-drone and associated technologies that can assist the Indian Army in its operations.*
  • The Ministry of Defence and Ministry of Ayush decided to operationalise Ayurveda Centres at 37 Cantonment Hospitals & 12 AFMS military hospitals across the country to integrate Ayurveda into the health establishment.
  • An MoU was signed between Indian Navy (IN) and M/s Larsen and Toubro (L&T) to engage M/s L&T as a Knowledge Partner for nurturing technologies in various domains, for induction into the Indian Navy. The MoU encompasses all the aspects related to Electrical, Weapon, Engineering, Machinery and Control, and Hull of a Naval Warship.
  • India Bangladesh Joint Military Exercise “EX SAMPRITI-X” to commence in Bangladesh aimed to strengthen and widen the aspects of interoperability and cooperation between both the armies.*
  • A successful training launch of an Intermediate Range Ballistic Missile, Agni-4, was carried out. The launch validated all operational parameters as also the reliability of the system. The successful test reaffirms India's policy of having a 'Credible Minimum Deterrence' Capability.*
  • Ministry of Defence signs MoU with Bank of Baroda and HDFC Bank to expand the reach of SPARSH initiative.*
  • Vertical Launch Short Range Surface to Air Missile successfully flight-tested by DRDO & Indian Navy off Odisha coast. *
  • India and Malaysia decide to enhance defence cooperation.*
  • New manufacturing facilities are inaugurated at Bharat Dynamics Limited, Bhanur to promote Make in India.*
  • The IAF Centre of Excellence for Artificial Intelligence under the aegis of UDAAN (Unit for Digitisation, Automation, Artificial Intelligence and Application Networking) was inaugurated for handling all aspects of Analytics, Machine Learning, Natural Language Processing, Neural Networks and Deep Learning algorithms. *
  • 75 newly-developed Artificial Intelligence (AI) products/technologies are inaugurated. These products are expected to open up new business avenues for the Defence PSUs.*
  • The Ministry of Defence has set up an institutional mechanism comprising of an Apex committee with Defence Secretary as Chairman to conduct a Performance and Efficiency Audit into various aspects of its activities. It is a major shift from the existing transaction-based compliance audit to carry out an outcome-based Performance/ Efficiency Audit aimed at enhancing overall efficiency.*
  • DRDO’s Technology Development Fund (TDF) for MSMEs & Startups to indigenize cutting-edge defence technologies. 164 Technologies being indigenized, USD 30 Mn funds sanctioned, 1638 experts and 4865 companies engaged.*
FDI Policy
  • FDI in the defence sector is allowed up to 74% through automatic route (from earlier 49%) for companies seeking new industrial licenses. FDI beyond 74% and up to 100% will be permitted under the Government route.*
  • The cumulative FDI equality inflow in the Defence industry is USD 15.71 mn during the period April 2000 to September 2022.*


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Sector Policy


  • Defence procurement is governed by the Defence Procurement Procedure (DPP).
  • The latest revision of DPP was released in March 2016.
  • DPP focuses on institutionalising, streamlining and simplifying defence procurement procedure to give a boost to the “Make in India” initiative.


  • The key objectives of the defence offset policy are to leverage capital acquisitions to develop the domestic Defence industry. The policy stipulates the mandatory offset requirement of a minimum of 30% for procurement of defence equipment by foreign defence players. It is applicable to categories of procurements where the estimated cost of the acquisition proposal is USD 286.04 Mn or more.


  • The initial validity period of industrial licenses has increased from 3 years to 15 years. It also has a provision to grant an extension for a period of 3 years.*
  • Guidelines for the extension of validity of industrial licenses have been issued. Partial commencement of production is treated as the commencement of production of all the items included in the licence.*


  • DAP 2020 encourages indigenous designing and manufacturing of defence items. The ‘Make’ Procedure aims to achieve the objective of self-reliance by involving greater participation of Indian industries including the private sector through the following mechanisms:
  • Make-I (Government Funded): This involves the design and development of equipment, systems, major platforms or upgrades thereof by the industry. Ministry provides financial support upto 70% of prototype development cost or a maximum INR 250 cr per Development Agency (DA).
  • Make-II (Industry Funded): This includes design & development and innovative solutions by Indian vendor, for which no Government funding is provided, but it has the assurance of procurement on successful prototype development.
  • Government has established two Defence Industrial Corridors, one each in the States of Uttar Pradesh and Tamil Nadu. The investments of INR 20,000 cr are planned in Defence corridors of Uttar Pradesh and Tamil Nadu by year 2024.


  • Scheme to boost domestic defence & aerospace manufacturing
  • INR 400 cr outlay to create state-of-the-art testing infrastructure in partnership with industry
  • Scheme was launched by RM in May 2020
  • Project consultant/officer can be contacted for clarification

Innovations for Defence Excellence (iDEX)*

  • An innovation ecosystem for Defence, namely “Innovations for Defence Excellence (iDEX)”was launched in April, 2018.
  • iDEX aims at creation of an ecosystem to foster innovation and technology development in Defence and Aerospace by engaging Industries including MSMEs, Start-ups, Individual Innovators, R&D institutes and Academia and provide them grants/funding and other support to carry out R&D which has potential for future adoption for Indian defence and aerospace needs.
  • INR 1,000 crore have been allocated for iDEX related purchases, which will be increased further in the future. INR 500 crore have also been allocated separately to support startups for the next five years

Defence Production and Export Promotion Policy 2020 (DPEPP)*

  • Ministry of Defence (MoD) has formulated a draft DPEPP 2020 as guiding document of MoD to provide a focused, structured, and significant thrust to defence production capabilities of the country for self-reliance and exports.
  • Aero Engines: Focus on establishing an Aero Engine Complex for civil and military applications and developing core technologies for Aero Engines.
  • Maintenance, Repair & Overhaul: Leverage favorable tax rationalization measures to promote MRO sector and enable convergence between Civil and Military MROs.
  • Critical Technologies & Materials: List of Critical Technologies and Materials to be identified and R&D strategies to be developed to attain indigenization.

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Financial Support


  • The total budgetary allocation for FY 2022-23 towards the Ministry of Defence (Civil) is INR 20,100 cr.
  • The total budgetary allocation for FY 2022-23 towards the Defence Services (Revenue) is INR 2,33,000.54 cr.
  • The total budgetary allocation for FY 2022-23 towards the Capital Outlay on Defence Services is INR 1,52,369.61 cr.


Investment Opportunities
  • In the Indian Defence Sector, investment opportunities are in the following areas: 16 
    • Supply chain sourcing opportunity
    • Modernization of armed forces
    • Infrastructure development 
    • Research and Development 
  • Defence products manufacturing - Indigenously designed, developed and manufactured (IDDM) is the new method of capital procurement 

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Foreign Investors
  • Airbus (France)
  • BAE India Systems (UK)
  • Pilatus (Switzerland)
  • Lockheed Martin (USA)
  • Boeing India (USA)
  • Raytheon (USA)
  • Israel Aerospace Industries (Israel)
  • Rafael Advanced Defense Systems Ltd. (Israel)
  • Dassault Aviation SA (France)
  • Department of Defence Production, Ministry of Defence
  • Department for Promotion of Industry & Internal Trade, Ministry of Commerce & Industry, Government of India
  • Department of Commerce, Ministry of Commerce & Industry, Government of India
  • Defence and Strategic Industries Association of India
  • Border Roads Organization 26
  • Defence Investor Cell, Ministry of Defence

  • DRDO

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  7. “Defence Budget 2020-21,” Ministry of Defence, PIB,
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  9. “Defence Procurement Procedure 2016 – Capital Procurement,” Ministry of Defence,   
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