India’s defence ecosystem is undergoing a fundamental transformation. On September 7, the Defence Acquisition Council cleared acquisition proposals worth ₹1.1 lakh crore for the Army, Navy and Air Force. Nearly 98% of this value will be sourced from Indian industry. Two weeks earlier, the ministry of defence approved the transfer of technology developed by the Defence Research and Development Organisation (DRDO) for the entire conventional missile portfolio to Indian industry. A system of de-facto product reservation, which created public-sector monopolies such as Hindustan Aeronautics Limited (HAL), Bharat Dynamics Limited (BDL), and Munitions India Limited (MIL), is now steadily giving way to a more level playing field for private enterprise. India is moving from nomination to competition.
The results are already visible. Defence production reached ₹1.78 lakh crore in FY26, a fourfold increase from ₹43,746 crore recorded in FY14. Exports touched ₹38,424 crore, rising 62.66% in a single year, with Indian defence products now reaching more than 80 countries. Private industry already contributes about ₹42,000 crore to defence production.
What makes this moment significant, however, is what is now emerging from Indian factories.
In August, Indo-Russian Rifles test-fired the first AK-203 Sher built entirely from Indian components and input materials. A rifle that began as licensed assembly from imported kits now operates on a wholly domestic supply chain. L&T has built considerable depth in missile systems and naval engineering. Bharat Forge and Tata Advanced Systems have delivered on the Advanced Towed Artillery Gun System programme. Solar Industries has fielded Nagastra, India’s first indigenous man-portable loitering munition. Raphe and Mphibr, a young startup, has developed indigenous unmanned aerial vehicles (UAVs), high-endurance propulsion engines, and critical military drone systems for India’s armed forces.
Beneath these large corporates lies an innovation base that barely existed a decade ago. iDEX, launched in 2018, has engaged 676 startups, MSMEs and innovators and signed 551 contracts, with grants for deep-tech work in artificial intelligence, quantum technologies, autonomy and counter-drone systems. Funding is milestone-based grant-in-aid, while innovators retain their intellectual property. Procurement orders for iDEX products have made a quantum jump.
{{/usCountry}}Beneath these large corporates lies an innovation base that barely existed a decade ago. iDEX, launched in 2018, has engaged 676 startups, MSMEs and innovators and signed 551 contracts, with grants for deep-tech work in artificial intelligence, quantum technologies, autonomy and counter-drone systems. Funding is milestone-based grant-in-aid, while innovators retain their intellectual property. Procurement orders for iDEX products have made a quantum jump.
{{/usCountry}}The strategic logic runs much deeper than these numbers. India inherited a defence model built for an era in which advantage came from scale and from platforms developed over long periods. Recent conflicts have fundamentally altered the economics of warfare. Loitering munitions costing lakhs can neutralise platforms costing crores. Software-defined sensing, electronic warfare and assisted targeting increasingly shape battlefield outcomes. The differentiator is the speed at which systems can be developed, tested, adapted, and redeployed.
The next frontier is already visible. In June, a US Navy unmanned surface vessel pulled two downed Army aviators out of the water off Oman within two hours, in the first known rescue of aircrew by a drone boat. The vessel was built by Saronic, a startup barely four years old. China has been building the industrial base for precisely this future. Its firms account for roughly two-thirds of the global humanoid robot supply chain, while there is news that People’s Liberation Army (PLA) has been fielding unmanned ground vehicles and robotic mules across the borders.
India needs faster deployment of such systems for border management, high-altitude warfare, and marine combat. Building capabilities of this kind requires simultaneous depth in electronics and semiconductors, precision manufacturing and advanced materials, AI, autonomy software, and robotics. Private participation is no longer merely desirable; it has become essential to support this transition.
Global experience points in exactly the same direction. Rheinmetall grew out of industrial and automotive components and is today Europe’s foremost ammunition and combat-vehicle maker. In the US, Palantir and Anduril have moved from being venture-backed startups to core defence suppliers. We are beginning to see similar patterns in India with L&T, Mahindra Defence Systems, Tata Advanced Systems, and Adani. Equally important, we have startups of comparable ambition working on advanced drones, autonomy and new generation defence systems. Localisation of defence equipment, driven by private-sector capability and innovation, is increasingly becoming a global norm.
Supply chains can turn hostile without warning, and allies will always have their own wars to fight. The war in Ukraine has stretched Russian production. A supplier fighting its own war will inevitably ration its exports. Further, the true cost of an imported platform is the next 30-year tail of spares, overhauls, upgrades and proprietary software. This creates long-term strategic dependence and places additional stress on our current account deficits. Greater localisation will enable Indian firms to also export to other countries and build long-term partnerships and soft power among our allies.
For private industry, however, the binding constraint has increasingly shifted from policy to capital. Working-capital cycles in defence can run from 12-24 months, and startups feel this squeeze most acutely. Having opened the sector to competition and innovation, the next step must be to ensure that promising defence firms do not fall into the valley of death between successful innovation and commercial scale.
First, we must fix the payment cycle, with advance and milestone-based payments released against a defined procurement mandate. Government can kill enterprises by delaying payments. Second, India should introduce a dedicated working-capital credit guarantee scheme for defence companies. Third, the tax framework must recognise the unusually high R&D intensity and low production volumes of this sector. Fourth, a fixed share of defence R&D spending should be reserved for smaller firms, with innovators retaining their intellectual property and development contracts bundled with production orders. The draft DAP 2026 has recommended a standalone iDEX and TDF chapter, a minimum pilot order once a prototype clears trials, and a five-year assured order for successful projects. Implementing this is critical.
Indian firms are innovating at remarkable speed. As defence spending grows, we must ensure that every rupee spent on defence strengthens our technology base, manufacturing capacity and strategic autonomy.
Amitabh Kant is former G20 Sherpa of India and CEO, NITI Aayog, and former secretary, Department of Industrial Policy and Promotion (DIPP). The views expressed are personal