n a bold and ambitious move to transform India into a global defence powerhouse, the central government recently pledged to more than double the country’s annual military exports to ₹150,000 crores by 2028-29. This commitment signals a significant shift in India’s defence strategy, emphasizing self-reliance and indigenization, and is poised to have far-reaching implications for the sector. The defence sector in India is witnessing substantial growth, driven by increasing defence budgets and a robust push for indigenization. This growth trajectory not only bodes well for companies within this space but also positions the sector as an attractive investment proposition. As India emerges as the fourth largest defence spender globally, the sector’s prospects look exceedingly promising. In light of these developments, Mint delves into the explosive growth of the Indian defence sector.
Rising Defence Budgets: A Catalyst for Growth
India’s defence budget has seen a consistent increase over the past few years, reflecting the government’s focus on strengthening the country’s military capabilities. The budget for the fiscal year 2023-24 was set at ₹5.25 lakh crores, a substantial rise from previous years. This increase in budget allocation underscores the government’s commitment to modernizing the armed forces and enhancing combat readiness.
A significant portion of this budget is earmarked for capital expenditure, which includes the acquisition of new weapon systems, platforms, and infrastructure development. The emphasis on capital expenditure highlights the government’s intention to procure advanced technology and equipment, thereby boosting the capabilities of the Indian armed forces. This focus on modernization is expected to drive demand for domestically manufactured defence products, fostering growth in the sector.
Indigenization: The Key to Self-Reliance
Indigenization lies at the heart of India’s defence strategy. The government has launched several initiatives to promote the domestic manufacturing of defence equipment, aiming to reduce dependency on foreign suppliers and enhance self-reliance. The Defence Production and Export Promotion Policy (DPEPP) 2020 and the Strategic Partnership (SP) model are key components of this strategy.
The DPEPP 2020 outlines the government’s vision to achieve a turnover of ₹1.75 lakh crores in defence manufacturing by 2025, including exports worth ₹35,000 crores. The policy focuses on promoting indigenous design, development, and manufacturing of defence equipment, with an emphasis on cutting-edge technologies. Additionally, the SP model aims to create a robust ecosystem for defence manufacturing by involving private sector companies in the production of critical defence platforms and systems.
The government’s push for indigenization is further supported by the Make in India initiative, which encourages domestic companies to engage in defence production. The recent launch of India’s first index fund offering exposure to listed defence stocks by Motilal Oswal Asset Management Co. underscores the growing investor interest in this space.
Defence Exports: Charting a New Course
India’s defence exports have witnessed a significant uptick in recent years, driven by the government’s proactive measures to promote the export of domestically manufactured defence products. In 2022-23, India achieved record defence exports worth ₹12,000 crores, marking a remarkable increase from previous years. The government’s target to more than double these exports to ₹150,000 crores by 2028-29 sets a clear roadmap for the future.
The surge in defence exports can be attributed to several factors, including the establishment of export promotion bodies, simplification of export procedures, and targeted marketing efforts. The Defence Export Promotion Scheme (DEPS) and the Defence Attache Scheme are notable initiatives aimed at facilitating exports and expanding India’s presence in global defence markets.
Moreover, India’s growing strategic partnerships with countries like the United States, Israel, Russia, and France have opened up new avenues for defence exports. The government’s focus on building strong bilateral ties and participating in international defence exhibitions and trade shows has also played a crucial role in promoting Indian defence products on the global stage.
Investment Opportunities and Market Potential
The defence sector in India presents lucrative opportunities for investors, driven by the sector’s robust growth prospects and the government’s focus on indigenization and exports. The launch of the first index fund offering exposure to listed defence stocks by Motilal Oswal Asset Management Co. highlights the sector’s attractiveness as an investment proposition.
Several Indian companies, both public and private, are at the forefront of the defence manufacturing landscape. Public sector undertakings like Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL), and Bharat Dynamics Limited (BDL) have established themselves as key players in the industry, delivering a range of products and services to the Indian armed forces. These companies are poised to benefit from the increasing defence budgets and the government’s push for indigenization.
In addition to public sector undertakings, private sector companies are also making significant strides in the defence space. Companies like Larsen & Toubro (L&T), Tata Advanced Systems, Mahindra Defence Systems, and Adani Defence & Aerospace are actively involved in the development and production of advanced defence equipment. The government’s Strategic Partnership model has opened up new opportunities for private sector participation, further boosting the sector’s growth potential.
The increasing focus on research and development (R&D) and innovation is another factor driving growth in the defence sector. The Defence Research and Development Organisation (DRDO) plays a pivotal role in developing cutting-edge technologies and systems, fostering collaboration with both public and private sector entities. The emphasis on R&D is expected to result in the development of advanced indigenous defence products, enhancing India’s self-reliance and export capabilities.
Challenges and the Road Ahead
While the defence sector in India is on a robust growth trajectory, several challenges need to be addressed to sustain this momentum. The procurement process, often criticized for being slow and bureaucratic, requires streamlining to ensure timely acquisition of critical defence equipment. Additionally, there is a need to enhance the domestic defence manufacturing ecosystem by promoting investments in infrastructure, technology, and skilled manpower.
Furthermore, the sector must focus on fostering innovation and embracing emerging technologies such as artificial intelligence, cybersecurity, and autonomous systems. These technologies have the potential to revolutionize defence capabilities and provide India with a strategic edge in the global defence landscape.
The government must continue to play a proactive role in facilitating exports by providing financial incentives, enhancing market access, and strengthening strategic partnerships. The establishment of defence corridors, as envisioned in the Defence Production and Export Promotion Policy, will also play a crucial role in creating a conducive environment for defence manufacturing and exports.
India’s defence sector is witnessing an unprecedented transformation, driven by rising defence budgets, a focus on indigenization, and a strategic push for exports. The government’s ambitious target to double defence exports by 2028-29 underscores its commitment to positioning India as a global defence powerhouse. With increasing investments, robust growth prospects, and a conducive policy environment, the defence sector is poised for an explosive show. As India continues its journey towards self-reliance and global prominence in the defence arena, the sector offers a compelling narrative of growth, innovation, and strategic significance.
Disclaimer: The thoughts and opinions stated in this article are solely those of the author and do not necessarily reflect the views or positions of any entities represented and we recommend referring to more recent and reliable sources for up-to-date information.
