India has one of the largest armed forces in the world, and when it comes to defence spending, it is the third highest. However, till a decade ago, most of the defence purchases were made from the international market. However, with the new “Atmanirbhar” initiative of the Government of India, the focus is on developing indigenous defence product manufacturers. The 2022-23 Union budget especially earmarked 25% of the defence budget to develop private industries and start-ups in the defence sector to boost this growth.
And the results are visible within a year. There are now 336 companies working in the defence sector along with government-owned enterprises under DRDO. The defence export of India is steadily climbing and is expected to grow by $12 billion by 2023. At present, India is collaboratively exporting to about 75 countries.
Reasons for the emergence of the Indian Defence industry as a global entity
- One of the major initiatives of GOI (Government of India) has been the publication of ‘Positive Indigenization lists’, which showed a massive list of 411 defence equipment that will be manufactured locally.
- Another positive step taken by GOI is the easing up of FDI or Foreign direct investment into the defence sector. Now, it is possible to get up to 74% FDI through Automatic Route, and it goes up to 100% if Government Route is taken. In the former, the company owned by an Indian or an NRI doesn’t need to go through prior approval from GOI to set up its business through Foreign Direct Investment or FDI. In the latter, approval from GOI is a must before investment.
- Defence Acquisition Procedure or DAP was also thoroughly revised to encourage the homegrown defence sector in 2020. As per the new directive, preference will be given to industries set up as part of the Make in India initiative during the procurement process. This is one of the reasons why the country is seeing such a good boost to FDI in defence sector.
- The main defence manufacturers of India where under the Ordinance Factories Board, a Government Department. Now they have been changed to Government-owned companies. This was done to make these factories and defence product manufacturers more productive. It also encourages them to compete in the global defence market, improve their products by investing in R&D and find new export destinations.