Strategic Considerations and India’s Defence Manufacturing Sector

Executive Summary

A geographically smaller United Kingdom (UK) was able to gradually colonise a much larger area in the South-Asian sub-continent, including a country that is today called India. This was possible because of internecine jealousies, combined with high levels of alienation of the common people from their rapacious rulers, plus linguistic and regional divisions within India. A crucial factor was that the UK’s military equipment was way more advanced compared to what the various Indian regional fiefdoms had in their arsenals.

On October 7, 2023, Hamas carried out a terrorist attack on Israeli civilians and military personnel and about 1,200 Israelis were killed, and about 250 were taken hostage. Subsequently, Israel has bombed Gaza repeatedly, due to which around 73,000 civilians have been killed, and most of Gaza has been reduced to rubble. The resultant human misery raises several questions about the use of guerrilla-type tactics by Hamas and the disproportionate use of military force by Israel. More recently, since February 28, 2026, the US and Israel have bombed Iran. Iran has retaliated by using drones and missiles against Israel and US military facilities in West Asia. Furthermore, Israel’s armed forces have entered Lebanon to root out what the Israeli government has called Hezbollah and its affiliates. Abstracting from who was justified or the historical background of this ongoing, highly distressing human tragedy in West Asia, there are lessons that India needs to internalise regarding military preparedness and, equally importantly, domestic capabilities in defence production. It is abundantly evident that multilateral institutions such as the United Nations are incapable of mediating or restoring peace.

India’s nuclear doctrine is based on retaliation to a nuclear strike against India. As of March 2026, a global reality is that nuclear weapons are unlikely to be used and definitely not against a country that possesses nuclear weapons. It follows that, in practice, military deterrence depends on a country’s conventional weapons capabilities. Consequently, India needs to build and keep up to date its military weapons systems, for example, fighter aircraft, submarines, missiles, unmanned aerial vehicles (UAVs), including drones and so on.

In the 1950s, China received technical assistance from the Soviet Union. However, from around 1961, China’s industrial development and production of defence equipment have been through indigenous effort. Starting at similar economic and technological levels in the 1950s, China is currently at much higher levels of sophistication, as compared to India, in manufacturing defence equipment.

Planning and Procurement in the Defence Sector

Decision-making in India’s defence sector is highly centralised, with key procurement decisions made by the Cabinet Committee on Security (CCS). Over the years, several committees have been added to the planning and procurement processes. The structure of decision-making and periodic assessments has contributed to delays in implementation. Moreover, the ambiguous nature of “quantitative requirements” (QRs) provided by the government to military equipment manufacturers serves as a shortcoming in the acquisition process. The lack of engineering capabilities is a hindrance in acquisition from foreign counterparts; moreover, the time taken to assess and implement the capabilities of both foreign and domestic suppliers is another shortcoming. It is also recognised that defence planning and spending should be incorporated into schedules longer than five years, since implementation takes longer. All these factors collectively make the defence procurement procedures highly time-consuming.

Expanding the Defence Sector Budget

Over time, defence expenditure as a percentage of gross domestic product (GDP) has declined gradually, even as border-related security challenges have increased. Further, this ratio is not an appropriate measure to assess the adequacy of defence expenditure. This is because the GDP could go up or down depending on the adequacy of rainfall or public health factors such as the COVID 19 pandemic. Therefore, defence expenditureas a percentage of the central government’s revenues is a more appropriate yardstick for assessing and comparing the adequacy of such spending over  time. A relatively large proportion of India’s defence expenditure is spent on salaries and pensions (28% and 23%, respectively). This leaves limited availability of financial resources to promote technological advances through appropriate funding of research and development (R&D). Potential avenues for resource mobilisation include rationalising subsidies, particularly fertiliser and electricity subsidies, and renting out some of the available land pools that belong to the Ministry of Defence (MoD).

Limited Domestic Production Capabilities and Overreliance on Foreign Suppliers

In the Soviet Union, later Russia and in China, the entire range of defence equipment production has been and continues to be in almost entirely government-owned and managed establishments. By contrast, while priorities are set and funding is provided by the US government, defence equipment manufacturing is mostly done by the private sector in the US. Consequently, there is no conclusive argument to be made in favour of the public or private sector in the production of advanced defence equipment. Currently, India is at a point where much of its domestic defence-sector manufacturing comes from Defence Public Sector Undertakings (DPSUs). The Defence Research and Development Organisation’s (DRDO) interaction with the three wings of the armed forces has been limited, which contributes to procedural delays.

Given India’s territorial differences with Pakistan and China, defence strategists have speculated that India may face a simultaneous two-front armed confrontation with these two countries. The Government of India should consider the anticipatory actions needed, even though there is a low probability of India having to face armed hostilities on two fronts, including the promotion of terrorism in India, particularly infiltration into Jammu and Kashmir by the Pakistani state or its proxies. India has successfully resisted external armed aggression except in the 1962 war with China. As of the end of 2025, India lags behind the US, Russia, and China in the indigenous production of sophisticated defence equipment. Consequently, India is overly dependent on imports of military equipment and related technology from Russian, Western, or Israeli sources. Given the strategic realities of the current and foreseeable world, it should be a priority for India to improve its defence production capabilities.

Unmanned Aerial Vehicles in Warfare

UAVs, or drones, are becoming an increasingly important technology in the defence sector. Although they are not perfect substitutes for fighter jets, they offer a costeffective option and have been widely used in global conflicts such as those between the US/Israel–Iran and Russia–Ukraine. Their growing significance makes it imperative for India to develop this capability domestically, creating opportunities for both large and small firms to participate in their design, development, and assembly.

Private Sector Participation in the Defence Sector

The Make in India initiative seeks to reduce defence import dependence by promoting domestic manufacturing through measures such as the Strategic Partnership model, higher foreign direct investment (FDI) limits, corporatisation of the Ordnance Factory Board (OFB), indigenisation lists, prioritisation of “Buy Indian Indigenously Designed, Developed & Manufactured (IDDM)” and Innovations for Defence Excellence (iDEX), and reserving 75% of the modernisation budget for domestic procurement. However, private sector participation remains constrained by DPSU dominance, preferential treatment, and weak accountability despite demonstrated capabilities. Procurement inefficiencies, procedural delays, underutilised budgets, and a lack of coordination among stakeholders further hinder progress. Indian and foreign private sector defence equipment manufacturers have suggested avoiding preferential treatment for DPSUs, reforming the composition and functioning of the Defence Acquisition Council (DAC), establishing a dedicated procurement wing and a time-bound acquisition framework.

In overall terms, although India’s capabilities in the defence manufacturing sector are increasing, these are substantially behind those of China. The consequent dependence on imports reduces India’s national security and foreign policy options. To sum up, India’s constraints in defence manufacturing are not merely financial. There are several policy shortcomings in the way decisions are made. Further, India’s private sector does not face an even playing field when competing with public sector corporations and bodies such as the DRDO.

Keywords: Indian defence sector, defence manufacturing, military modernisation, defence sector public undertakings, defence budget, Unmanned Aerial Vehicles, national security, arms import, Ministry of Defence, DRDO.