Small private players are a rising force in India’s defence tech

Defence procurement is still mired in archaic rules
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RAMAKRISHNA G

The recent 100-hour war with Pakistan has shone a torchlight on one heartening feature of India’s punching power — the diffusion of defence production into MSMEs. Earlier, the production of weaponry used to be an almost exclusive preserve of government-owned entities; the private sector, again mostly the large players, was in the fringes, supplying components rather than systems. Now, the private sector is active in the supply of equipment and tier-1 subsystems.

India may not yet have the likes of a Lockheed Martin or Dassault Systems, but the breadth of private sector participation is growing in a whole host of areas such as radars, drones, satellites, satellite imagery and electronic hardware. A widespread domestic production base gives the defence a rapid ramp-up ability in times of war. But, more importantly, this brings into the sector higher cerebral power, as more players means more thinking heads, implying more innovation. Some innovations, such as stealth-giving polymers that make tanks, guns and aircraft invisible to enemy radar, and satellite-based navigation, are at the cutting edge of technology. Nowhere is the private sector participation more visible than in unmanned aerial vehicles, which have become the leading-edge weapons in today’s wars. A hundred UAV start-ups have mushroomed all over the country in the last four or five years, dozens of whom have become defence suppliers. And, this is just the beginning. Amidst rising conflicts, India is sure to continue to grow its defence budget, which means a larger playground for the private sector. There are miles to cover, and Indian companies are capable of building India’s defence muscle.

However, there is a flip side. Defence procurement is still mired in archaic rules. It is hard to find a single defence start-up that has not tripped over red tape. Defence procurement involves multiple layers of approval — from Services HQ to Ministry of Defence to Cabinet Committee on Security — leading to years-long timelines. The Make-I and Make-II categories of the Defence Acquisition Procedure, frequently suffer from bureaucratic delays in the disbursement of sanctioned funds or milestone-based payments. Restrictive eligibility criteria, like turnover and prior experience, often exclude start-ups. The requirement to have multiple suppliers for a product leaves start-ups with unique, innovative products out in the cold.

In some cases, contracts are awarded through ‘reverse auction bidding’, which hammers down prices so low as to discourage serious players from participating. There are instances of start-ups that have lined up overseas investments but have been waiting for FDI approval for years. Some numbers mirror the reality. Defence procurement in 2023-24 stood at ₹1.27 lakh crore, a 174 per cent increase from ₹46,000 crore in 2014-15; but adjusted for inflation, the growth comes to around 65 per cent. With an enterprising MSME sector, a lot more can be done if procurement rules are made easy.

Published on May 21, 2025

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