India’s defence indigenization strategy opens enormous opportunity for start-ups and MSMEs

India’s defence sector throws huge opportunity for domestic manufacturing, especially by micro, small and medium enterprises (MSMEs). Right from producing low-technology weapons and ammunitions to building, warships, aircrafts, helicopters and missile systems, there is enormous scope for local design and manufacturing for MSMEs and start-up enterprises alike. The country is the largest importer of defence equipments and last year (FY22), India imported Rs. 50,061 crore worth of defence stores or equipments. Even if we succeed in indigenizing 1% of this import, it can create Rs. 500 crore worth of business opportunity for MSMEs and large manufacturers.

Local Competence

Since 2001, when India opened its defence sector to private players, around 358 companies have obtained license and set up production facilities to cater to domestic requirement and also to meet global demand. India, although not a major exporter of defence equipments, has witnessed three-fold growth in annual defence product exports to Rs. 12,815 crore in the last four years ending FY22. This proves the underlying potential and competitiveness of local manufacturers.

Supportive Policy

In order to provide a major impetus to domestic manufacturing, the government notified four ‘Positive Indigenization Lists’ amounting to 411 items from defence services and three ‘Positive Indigenization Lists’ to the tune of 3738 items that can be supplied to Defence Public Sector Undertakings(DPSUs). The central government will introduce import restriction on these products in a phased manner as mentioned in these lists to support local manufacturing. Existing and prospective manufacturers can visit the SRIJAN website launched specifically to update the list of defence products in demand from DPSUs and defence services.

Privatising (R&D)

India needs a modern, state-of-the art defence equipments to safeguard the country from technologically advanced warfare systems of adversaries. This calls for regular upgradation of defence manufacturing process and systems to align with the rapidly evolving technologies. An advanced defence system cannot rely only on the research and development (R&D) efforts of government and its agencies; but it also calls for equal participation of private sector in research and development. In order to invite private participation in defence R&D, government allocated 25% of the Defence R&D Budget for industry led R&D. More importantly, private industry and start-up enterprises can use the 18 major platforms that have been opened for industry-led Design & Development. Private companies and start-up enterprises can explore how they can introduce innovative design and products by leveraging these 18 platforms under various routes, such as Make-I, Make-II, Special Purpose Vehicle (SPV) and Innovations for Defence Excellence (iDEX), which are outlined in the Defence Acquisition Procedure-2020.