Experts Explain | Make in India in defence sector: Challenges, bottlenecks, and the way forward

Despite a 34-fold surge in defence exports over the past decade, structural bottlenecks continue to constrain India's ability to transition from a net defenc...

What Happened

Despite a 34-fold surge in defence exports over the past decade, structural bottlenecks continue to constrain India's ability to transition from a net defence importer to a credible exporter and self-reliant manufacturer at scale.
Experts have highlighted the gap between successful prototype development under innovation schemes and the absence of a robust pipeline for defence-grade serial production and export-competitive volumes.
The Ministry of Defence has earmarked 75% of its FY 2025-26 modernisation budget (₹1,11,544 crore) for domestic procurement, signalling continued institutional commitment to indigenisation.
India's defence exports reached ₹23,622 crore in FY 2024-25, up from ₹686 crore in 2013-14, with a stated target of $7 billion in annual exports by FY 2030.

Static Topic Bridges

Defence Acquisition Procedure (DAP) 2020

DAP 2020 replaced the earlier Defence Procurement Procedure (DPP) 2016 and is the primary framework governing all capital defence acquisitions by the Ministry of Defence.

Introduces the "Buy (Indian-IDDM)" category as the highest preference — IDDM stands for Indigenously Designed, Developed, and Manufactured.
Priority sequence: Buy (Indian-IDDM) > Buy (Indian) > Buy and Make (Indian) > Buy and Make > Buy (Global-Manufacture in India) > Buy (Global).
Incorporates the concept of Leasing as a procurement option for the first time.
Mandates that 25% of the defence R&D budget be earmarked for private sector-led research.
Introduced "Make III" category specifically for micro, small, and medium enterprises (MSMEs).

Connection to this news: Despite DAP 2020's indigenisation mandate, the transition from approved categories on paper to actual delivery timelines remains slow, partly because of bureaucratic procurement timelines and the limited absorptive capacity of domestic industry for complex platform manufacturing.

iDEX — Innovations for Defence Excellence

iDEX (Innovations for Defence Excellence) was launched in 2018 under the Department of Defence Production to foster innovation among startups, MSMEs, and individual innovators for defence and aerospace applications.

As of February 2025: 549 problem statements issued, 619 startups/MSMEs engaged, 430 iDEX contracts signed.
Armed Forces have procured 43 items from iDEX innovators worth over ₹2,400 crore by early 2025.
ADITI scheme (Acing Development of Innovative Technologies with iDEX): launched in March 2024 at DefConnect 2024; corpus of ₹750 crore for FY 2023-26; grants of up to ₹25 crore per project for 30 deep-tech, critical, and strategic technologies including AI, quantum, cyber-tech, satellite communication, semiconductors, and autonomous systems.
ADITI 2.0 (October 2024) added 19 new challenges in AI, quantum, anti-drone systems, and adaptive camouflage.
iDEX allocation (including ADITI): ₹449.62 crore for FY 2025-26.

Connection to this news: While iDEX has successfully seeded innovation at the prototype stage, the transition from grant-funded prototyping to defence-grade serial production at scale and export-competitive unit costs remains the key structural challenge identified by experts.

Defence Industrial Corridors

Two dedicated Defence Industrial Corridors have been established to create clustered manufacturing ecosystems for defence production.

Uttar Pradesh Defence Industrial Corridor: Nodes at Lucknow, Kanpur, Agra, Aligarh, Jhansi, and Chitrakoot.
Tamil Nadu Defence Industrial Corridor: Nodes at Chennai, Hosur, Coimbatore, Salem, and Tiruchirappalli.
Combined investment attracted: over ₹8,658 crore as of February 2025.
MoUs signed: 253, with estimated investment potential of ₹53,439 crore.

Connection to this news: The corridors represent the physical infrastructure layer of defence indigenisation but have faced criticism for slow land acquisition, infrastructure bottlenecks, and a gap between MoU commitments and actual production-floor investment.

FDI in Defence

Foreign Direct Investment policy in defence has been progressively liberalised to attract global original equipment manufacturers (OEMs) to set up production facilities in India.

Up to 74% FDI permitted through the automatic route for new defence industrial licenses.
FDI beyond 74% and up to 100% permitted through the government approval route for access to modern and state-of-the-art technology.
India has also joined the Defence Technology and Trade Initiative (DTTI) with the United States, facilitating co-production and co-development.

Connection to this news: Higher FDI limits remain under-utilised because global OEMs are deterred by mandatory technology transfer conditions, intellectual property concerns, and the complexity of navigating India's offset policy framework.

DRDO, HAL, and the OFB-to-DPSU Restructuring

India's defence R&D and manufacturing ecosystem relies on the Defence Research and Development Organisation (DRDO), Hindustan Aeronautics Limited (HAL), and a network of Defence Public Sector Undertakings (DPSUs).

DRDO: India's apex defence R&D body; responsible for platforms such as Tejas fighter, Arjun tank, BrahMos (jointly with Russia), Akash surface-to-air missile, and the DRDO-developed Light Combat Helicopter (Prachand).
HAL (Hindustan Aeronautics Limited): Navratna DPSU; manufactures the Tejas Mk1A; has a backlog of 83 Tejas orders from the Indian Air Force; key bottleneck is engine dependency on General Electric (GE F404/F414) and Kaveri engine development delays.
OFB Restructuring (2021): The 246-year-old Ordnance Factory Board was dissolved and its 41 factories restructured into seven new DPSUs — Munitions India Limited, Armoured Vehicles Nigam Limited, Advanced Weapons and Equipment India Limited, Troop Comforts Limited, Yantra India Limited, India Optel Limited, and Gliders India Limited — to improve efficiency, specialisation, and commercial competitiveness.

Connection to this news: The OFB-to-DPSU transition, while structurally sound, has created short-term supply disruptions, and concerns remain about whether the new DPSUs have developed genuinely corporate-grade operational cultures or remain constrained by their legacy bureaucratic structures.

Key Bottlenecks Identified by Experts

Long gestation period from R&D to induction: average 10–15 years for major platforms.
Limited private sector depth: most large private firms operate as Tier-1 assemblers, not deep system integrators.
Offset policy complexity: India's offset obligations (30% for contracts above ₹300 crore) are difficult to discharge and have generated compliance disputes.
Export control regimes: restrictions under India's own SCOMET (Special Chemicals, Organisms, Materials, Equipment, and Technologies) list and those of technology-transfer partner countries constrain the range of items India can export independently.
Human capital: scarcity of defence-specialised engineers and technicians, especially in electronics, software-defined systems, and advanced materials.

Key Facts & Data

Defence exports FY 2013-14: ₹686 crore; FY 2024-25: ₹23,622 crore (34-fold increase)
Export target: $7 billion by FY 2030
MoD domestic procurement budget FY 2025-26: ₹1,11,544 crore (75% of modernisation budget)
iDEX contracts signed: 430; startups engaged: 619; problem statements: 549 (as of Feb 2025)
ADITI corpus: ₹750 crore; max grant per project: ₹25 crore
Defence Industrial Corridors: Uttar Pradesh and Tamil Nadu
FDI in defence: up to 74% automatic route; 100% with government approval
OFB dissolved and replaced by 7 DPSUs (October 2021)
DAP 2020 mandates: 25% of defence R&D budget for private sector
BEL and HAL hold Navratna status among DPSUs