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India 06-Jul, 2024

India’s annual defence production hits a new high of Rs 1.27 lakh crore: A look at India’s indigenous defence production

By: Team India Tracker

India’s annual defence production hits a new high of Rs 1.27 lakh crore: A look at India’s indigenous defence production

Government has taken various steps to improve Indian defence products and make them competitive globally. Image Source: IANS

Approximately 79.2 percent of 2023–24's total value of production (VoP) came from DPSUs and other PSUs, with the private sector accounting for the remaining 20.8 percent.

India recorded the highest ever growth in the domestic defence production in value terms in the Financial Year 2023-24, with the figure crossing the mark of Rs 1.25 lakh crore. In a press release, the Ministry of Defence has attributed the growth to the successful implementation of the policies and initiatives of the Government directed towards maximizing indigenous defence production and enabling participation of private companies like defence startups and MSMEs in the domestics defence production.

In accordance with information gathered from all Defence Public Sector undertakings (DPSUs), other PSUs producing defence items, and private enterprises, the nation's defence production has reached a record-high of Rs 1,26,887 crore, up 16.7 percent from the previous fiscal year. In FY 2022–2023 defence output was valued at Rs 1,08,684 crore.

Approximately 79.2 percent of 2023–24's total value of production (VoP) came from DPSUs and other PSUs, with the private sector accounting for the remaining 20.8 percent. The data demonstrates that both the private sector and DPSUs/PSUs have seen a consistent increase in defence output in terms of absolute value. The industry, comprising DPSUs and other PSUs that produce defence items, as well as the private sector, were commended by Shri Rajnath Singh for bringing defence output to a record level.

Government has taken various steps to improve Indian defence products and make them competitive globally. To achieve "Aatmanirbharta in Defence," the government has placed a focus on the indigenization of several defence products. The locally produced indigenous goods become globally cost competitive, and it also makes it easier for MSMEs to be integrated into the global supply chain. Regularly and without charge, the DRDO transfers new technologies to the industries. Industries have been provided free excess to DRDO patents. DRDO conducts Niche Technology Demonstrations by engaging industries. This provides a dual benefit by assisting industries with user inputs for product improvement and for self-testing and evaluation of their products in field conditions.

Source: Department of Defence Production, Ministry of Defence

Under the Defence Acquisition Procedure (DAP) 2020, highest preference is provided to the ‘Buy Indian (Indigenously Designed Developed and Manufactured -IDDM) under which at least 50 percent material in a defence equipment should be ‘Indian Component (IC)’ as compared to 40 percent in the Defence Procurement Procedure (DPP), 2016. Also, a new category ‘Buy (Global-Manufacture in India) was introduced in the DAP 2020 in order to incentivise the foreign companies to manufacture in India. It also allows the foreign entities to set up Maintenance, Repair and Overhaul (MRO) facilities in India. 

By 2028–2029, the government wants to almost quadruple India's yearly defence output to Rs 3 lakh crore. The goal for defence exports is more than doubled, from the current level of Rs 21,083 crore to Rs 50,000 crore. The overall annual defence output target for 2024–2025 is Rs 1,75,000 crore, including exports valued at Rs 35,000 crore.

The inclusion of Micro, Small, and Medium Enterprises (MSMEs) and startups into the defence supply chain is one of the policy reforms the government has made, according to the ministry, to make doing business easier. According to the ministry, these policy changes have promoted active involvement from a range of businesses, including MSMEs and start-ups, in the design, development, and production of defence products.

The central government has also taken a number of steps for the promotion of MSMEs in the defence sector. Defence procurement worth Rs 5,463.82 crore was procured from the MSMEs in the year 2020-21. The value of defence procurement from MSMEs in 2019-20 was Rs 4,603.95 crore. During the last five financial years (2018-19 to 2022-23), 239 capital acquisition contracts have been signed for procurement of defence items/equipment. Out of which, 168 contracts accounting for 68 percent of total contract value have been signed with Indian vendors including MSMEs. Around Rs 500 crore have been sanctioned for Defence start-ups from 2021-22 to 2025-26.

Incentivised by various government reforms, India is quickly ramping up its manufacturing capacity. The Government of India has been focusing on making India a ‘defence exporting nation’ rather than a ‘defence importing nation.’

Source: Department of Defence Production, Ministry of Defence

There was a decline in the defence production in 2018-19 and 2019-20. One of the major reasons was the covid-19 pandemic which resulted in the nationwide lockdown for a long period of time and also the disruption in supply chains. But the government once again ramped up its efforts to increase the defence production in India as this is evident from the figures of 2020-21.

Weapon Simulators, Tear Gas Launchers, Torpedo Loading Mechanisms, Alarm Monitoring & Control, Night Vision Monocular & Binocular, Light Weight Torpedo & Fire Control Systems, Armored Protection Vehicles, Weapons Locating Radar, HF Radio, Coastal Surveillance Radar, etc. are some of the major defence equipment exported over the past five years. At present, the exports are being made to more than 85 countries all over the world. Names of the countries cannot be divulged due to strategic reasons.

Source: Department of Defence Production, Ministry of Defence

In an effort to provide a boost to the defense sector and increase the infusion of FDI, the government in September 2020 revised the regulations and permitted FDI under the automatic route up to 74 percent and 100 percent through the government route in any area, where it is likely to provide access to contemporary technologies. Recently, Sweden’s Saab became the first company which will be manufacturing the shoulder-fired rocket in Haryana, India with 100 percent FDI.

In order to promote indigenous defence production with special focus on participation of MSMEs and start-ups by bridging gaps in defence testing infrastructure in the country, Defence Testing Infrastructure Scheme has been launched to boost domestic defence and aerospace manufacturing.

The Department of Military Affairs has released 5 Positive Indigenisation Lists have till date under which around 4,666 defence products will not be imported from foreign vendors and will be manufactured in India providing a boost to Defence MSMEs, Startups and overall domestic defence industry.

A report published by Jefferies states that the industry expects a noticeable 13 percent Compound Annual Growth Rate (CAGR) from FY23 to FY30, with an anticipated domestic defence opportunity of between $100 and $120 billion over the next five to six years.

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