The road to somewhere | Reports and news analyses

For a country that was once heavily dependent on Soviet military equipment, India has built a defence-manufacturing base of its own. But it still does not have a military-industrial complex in the sense in which the phrase applies to the United States (US), Russia or China.

India’s defence exports have grown more than 25-fold over the past decade — from about ₹1,522 crore in Financial Year (FY)17 to ₹38,424 crore in FY26. Defence production rose about 140 per cent over the same period, reaching a record ₹1.78 trillion in 2025-26, while private-sector production nearly tripled to about ₹41,971 crore.

India was the world’s second-largest arms importer between 2021 and 2025, behind only Ukraine. BrahMos, India’s most prized defence export, once had about 60 per cent Russian technology, though that dependence has now fallen to 17-25 per cent.

“Indigenous technology is always the backbone of any military-industrial complex, whether in the US, China or France,” said lieutenant Colonel J S Sodhi (retired), an Indian Army veteran from the Corps of Engineers and author of China’s War Clouds: The Great Chinese Checkmate.

The military-industrial complexes of the US, Russia, and several other major powers began taking shape after World War II, around the mid-1940s, if not earlier — decades before India began moving in that direction.

“If you start 20-30 years after your competitors, you are obviously going to lag. That is what is happening with India’s serious turn towards building its own defence industry,” said Amit Cowshish, former financial advisor, acquisition, Ministry of Defence (MoD).

The real question is whether India is building a genuine military-industrial complex or merely becoming better at assembling others’ designs. That distinction has not mattered this much since Independence.

Colonial roots

India’s defence-manufacturing base dates back to 1775, when the East India Company set up the Board of Ordnance at Fort William in Kolkata. A gunpowder factory followed at Ishapore in 1787 and a gun carriage agency at Cossipore in 1801.

The colonial administration built this base not for India’s defence but for its own military and commercial interests. Its dependence on imported artillery had become too expensive and inefficient, especially after the 1857 uprising.

That colonial base, largely unchanged at Independence, functioned through the Ordnance Factory Board until 2021, when it was split into the seven new defence public-sector undertakings (PSUs).

The next major shift came with the 1971 Indo-Soviet Treaty of Friendship, which brought licensed production of Soviet tanks, guns, ships, helicopters and aircraft to ordnance factories.

“It helped us build an ecosystem. The ecosystem around Avadi, Medak and Jabalpur supported industry, including private companies and Micro, Small, and Medium Enterprises,” said  lieutenant General Sanjay Verma (retired), distinguished fellow at the Council for Strategic and Defence Research (CSDR).

Liberalisation opened up the Indian economy in 1991, but defence remained closed to private players until May 2001, triggered by the lessons learned from

the 1999 Kargil War, which exposed critical gaps in India’s military preparedness, supply chains, and defence procurement.

Describing the pre-1991 regulatory environment, Sodhi said: “Any foreign investor wanting to invest in India would really throw his hands up because our procedures were so complex and the red tape so intense that any normal person would give up.”

Only in the past two decades has India built something closer to the American model, with private companies competing for contracts rather than a single state monopoly dominating production. The public-sector backbone now comprises 16 companies. Nine legacy defence PSUs, including Hindustan Aeronautics Limited (HAL), Bharat Electronics and Mazagon Dock Shipbuilders, posted combined arms revenue of $7.5 billion in 2024, up 8.2 per cent.

How the others got there

The US and Russia did not so much plan their military-industrial complexes as fail to dismantle them once they had been built. “Until the latest of our world conflicts, the US had no armaments industry,” Dwight D Eisenhower said in his January 1961 farewell address, which coined the term.

Through the Cold War, US’ defence industry sprawled across more than 50 major contractors. Then, on July 21, 1993, it changed course in a single evening. US Deputy Defence Secretary William Perry called the chief executives of the country’s biggest defence companies to a Pentagon dinner and told them plainly: The Cold War was over, budgets were shrinking, and about half the room would not survive alone. The meeting became known as “the last supper”.

Within a decade, 46 of the 51 companies present that night had disappeared, been bought out or shut down. The five major contractors that remain — Lockheed Martin, RTX, Boeing, Northrop Grumman and General Dynamics — compete for Pentagon contracts while remaining commercially owned.

Russia took the state ownership route. The Soviet military industry had been centralised since before the Second World War, coordinated by the Military-Industrial Commission (VPK), which sat between production ministries and the political leadership.

By the late 1970s, nine specialised ministries — covering sectors from aviation to shipbuilding — ran about 1,770 enterprises, including 450 research institutes and 250 design bureaus. Each ministry manufactured almost all its requirements.

Post-Soviet Russia reconstituted the VPK by presidential decree in 2006. It reports directly to the President and still controls the state order for defence equipment.

China used the early 1990s to move away from Soviet-style ministries towards state-owned conglomerates. Its Ministry of Aerospace became the Aviation Industry Corp of China and the China Aerospace Science and Technology Corp. Ground systems and naval equipment moved to Norinco and the China State Shipbuilding Corporation, which merged with its largest rival in 2019.

Today, nine state-owned companies and one research institute supply almost all equipment for the People’s Liberation Army, though reforms now allow private firms to supply those conglomerates under a policy China calls “military-civil fusion”.

“It is also a question of how much the economy can afford. China, say, 30-40 years ago, was not so strong militarily. It first focused on building its economy and only then started looking at its military strength,” Cowshish said. “That is the path India also seems to be following. The focus is more on the economy. Once you have a strong economy, only then will you have the resources and the money to spend on defence purchases.”

Why India needs it

That question has acquired new urgency. Russia, India’s largest traditional defence supplier, has been at war in Ukraine since 2022 and is struggling to meet existing contracts. The US, to which India has increasingly turned, has become harder to read under the Donald Trump administration, with export controls and technology-denial rules tightening even for close partners.

The standoff with China along the northern border remains unresolved, while tensions with Pakistan remain high after the May 2025 confrontation.

“Geopolitical competition has intensified,” the Economic Survey 2025-26 observed. Even the best-case scenario it outlined for 2026 envisaged a world that would become “increasingly less secure and more fragile”. The survey warned that India must prepare for “a prolonged period of geopolitical uncertainties and conflicts” and assessed that the period from 2026 to 2045 could plausibly “resemble the interwar years of the twentieth century”. Self-reliance, it concluded, “is inevitable and necessary”.

It proposed a three-tiered framework for indigenisation decisions. Tier-I covered goods, components and technologies “where denial of access would impose immediate and asymmetric national costs and where global supply is highly concentrated”, including “defence-critical systems”. For these, the objective is “assured availability under stress, not short-term efficiency”. Domestic production could be pursued even when initially more expensive.

The implications for defence modernisation are stark: India may no longer be able to take for granted the traditional means of equipping its armed forces, including reliance on hardware from sources once considered reliable.

 “Europe wound down its military-industrial capacity to a notable extent after the end of the Cold War. The current climate of conflict and geopolitical uncertainty has prompted European countries to ramp up production again, but that is not something that can be done overnight,” said Samir V Kamat, who retired in May as secretary of the Department of Defence Research and Development and chairman of the Defence Research and Development Organisation (DRDO). The European Commission’s ReArm Europe Plan/Readiness 2030, presented in March 2025, proposes to increase defence spending to over 800 billion euros by the end of the decade. One lever, the SAFE instrument, was adopted in May 2025 to provide loans worth up to 150 billion euros to help member states rapidly increase defence investment. 

“While ensuring the growth of the domestic defence industry, including its private-sector constituents, the lesson from Europe and the US has been that a minimum production capacity, particularly for ammunition, explosives and critical equipment, must be maintained in the public sector,” Kamat said, pointing to the need for surge capacity, the ability to rapidly expand production during a conflict, which might not be financially viable for the private sector.

He also noted that technology denial predates the recent geopolitical deterioration. “Even in the normal course, when we buy equipment from abroad, it comes with watered-down capabilities in many cases. This is a common practice, with supplier countries preferring to sell ‘export variants’ often a generation behind the original platform. Ultimately, there is the crucial issue of sovereign control, especially when it comes to upgrading or supporting imported equipment.” In February 2026, the Dutch state secretary for defence claimed that the F-35’s software-upgrade system, which operators do not control, could be “jailbroken” to accept third-party updates.

India faced its own disruption. Despite close ties with Russia, it endured a nearly three-year delay in receiving S-400 Triumf air-defence systems. After the third of five squadrons was delivered in early 2023, the Russia-Ukraine war delayed the rest. India received the fourth squadron only in May 2026; the fifth is still awaited.

“The defence modernisation budget has grown substantially, with ₹1.85 trillion allocated for 2026-27. We will lose out on economic growth and the multiplier effect if we don’t spend a good portion of it within the country,”

Kamat said. “The capital outlay component of the defence budget will only continue to grow.”

Yet India’s share of global arms revenues, according to Stockholm International Peace Research Institute data, fell from 1.5 per cent in 2015 to 1.1 per cent in 2024. Over the same period, Türkiye emerged with a 1.5 per cent share, while Japan (2 per cent), Germany (2.2 per cent) and Israel (2.4 per cent) increased theirs.

Challenges

The government has already deployed many of the available policy levers to give the domestic defence industry a fillip. In recent years, a large share of the modernisation budget — the portion of the defence allocation used to acquire capital equipment such as tanks, jets and warships — has been earmarked for domestic industry, with a further carveout reserved for the private sector.

The MoD is also pursuing a “dual production pipeline policy”, under which reputable private players and public-sector defence firms will both be tapped, in concert or in parallel, for defence manufacturing.

Crucially, it has also moved to create a level playing field between the two sides of the industry by ending the practice of nominated procurement, which for decades benefited the public sector.

The Advanced Medium Combat Aircraft (Amca) programme offers another illustration of the MoD’s willingness to entrust a major project to the private sector, while also demonstrating the latter’s willingness to partner with government-controlled firms where their capabilities are complementary.

Two tensions, however, remain. The first is the competition for public funds. There are competing demands on the exchequer, particularly in a developing country with welfare priorities. Defence expenditure as a share of gross domestic product (GDP) has declined in recent years even as it has grown substantially in absolute terms.

That decline was reversed only in the latest Budget. Whether this proves to be a durable trend remains to be seen, but there are positive indications: The MoD has achieved full utilisation of the modernisation budget, lending confidence to an increase in defence allocation’s share of GDP in the medium term.

With tensions having emerged along both the country’s western and northern borders over the past five years and no durable solution in sight for the foreseeable future, Madan Sabnavis, chief economist at Bank of Baroda, argued that raising the defence allocation’s share of GDP to a reasonable level, perhaps about 2.2 per cent, would be justified and could well prove necessary. “Protection of the realm is the prime responsibility of any government,” he said.

Sabnavis said the revenue component of defence outlay would continue to rise in the normal course, while the capital component would be driven by the government’s assessment of the situation at the borders, the requirement to replenish inventory, and an additional allocation beyond that required for modernisation of the armed forces and acquisition of new capabilities.

“The fiscal deficit and where it stands should not be a major factor in deciding the defence allocation, an increase in which should be a priority given the prevailing geopolitical scenario,” he added.

If this materialises, it could deliver two broad benefits — greater demand for the industry, potentially prompting higher capital expenditure; and increased allocations for research & development in public-sector laboratories, the fruits of which are increasingly being productionised, including through private players.

The second tension is within defence spending itself. With specific segments of military technology yet to be fully mastered, the funds available to arm and equip the country, particularly to modernise the armed forces, must balance two competing priorities — importing urgently needed hardware that may not yet be available domestically and continuing to develop indigenous capabilities.

The former is often seen as coming at the expense of the latter and, by extension, of the development of the domestic defence industry. But a senior MoD official, who did not wish to be named, argued that this was an outdated way of looking at the situation.

Outlining the logic driving the development of the country’s military-industrial complex, and, by extension, its procurement decisions, the official said: “Optimising limited options, within existing constraints, is possible without creating false dualities between indigenisation and opting for imports when required.”

Arguing for continued pragmatism, the official explained that where the technology readiness level (TRL), a nine-stage metric assessing the maturity of a technology, was low, the “Buy Indian” route, with transfer of technology (ToT) from external sources, could be the preferred option. The “Buy Global” route should be the last resort in such cases. Where the TRL is above stage five or six, encompassing prototype development, the “Indigenously Designed, Developed, and Manufactured (IDDM)” category should be the only procurement route.

“In this middle-range on the TRL scale, if the readiness is at the lower end, a combination of Buy Indian and IDDM can also be pursued as the mode of procurement. While doing so, about 50 per cent of the overall requirement of the equipment can be reserved for the IDDM design when it is ready for induction,” added the official.

The numbers also support the idea that there is scope to meet urgent capital acquisition requirements while continuing to promote the domestic industry. Local firms accounted for 87 per cent of the value of capital procurement in FY25, and the MoD is committed to ensuring this share does not fall below 75 per cent. The official also highlighted that local manufacture of foreign-designed equipment, with defined levels of mandatory indigenous content (IC), was not without its benefits.

Closing the gaps

India’s next test is no longer whether it can manufacture more defence equipment but whether it can design, develop and improve the technologies that go into those systems. Private companies are moving into programmes once almost exclusively the preserve of state-run entities.

In May, the MoD invited bids from Tata Advanced Systems, a Larsen & Toubro-Bharat Electronics consortium, and a Bharat Forge-led consortium to build five flying prototypes of Amca, a fifth-generation stealth fighter.

Amca will be an Indian-designed aircraft, but its first version is planned around the US-origin GE F414 engine, while India works towards an indigenous high-thrust engine for later variants. Last month, Reliance Industries and Rolls-Royce announced their strategic intent to “partner and offer” capabilities for the design, development, manufacturing and delivery of an indigenous engine for Amca, while the French aerospace, defence and security firm Safran is separately pursuing cooperation with DRDO’s Gas Turbine Research Establishment.

Brigadier Rahul Bhonsle (retired) said this dependence illustrated why India could not measure technological self-reliance by the percentage of a platform manufactured domestically. “The gap is quite wide,” he said, arguing that the critical question was whether the weapon or platform was actually designed in India.

The Technology Development Fund (TDF) provides grants of up to ₹50 crore for critical technologies, with an additional ₹500 crore corpus for deeptech. As of June 2026, 80 TDF projects worth ₹334 crore were under implementation.

How many will make the journey from funded technology to an inducted, commercially viable product and how long that would take remain unclear, especially as long development cycles can leave technologies outdated before they enter service.

For strategic programmes like Amca, where returns may take years, the government cannot place the financial burden entirely on private companies. “For strategic projects, the government has to fund even 50 per cent and above,” said Bhonsle.

He pointed to the Kaveri engine programme, where years of government funding could not overcome the technology failing to mature in time. For dual-use technologies like drones, “existing mechanisms such as the TDF are more than adequate”.

“R&D is our Achilles’ heel. We spend 0.7-0.8 per cent of our gross economic expenditure on R&D. Countries like Israel spend 3-4 per cent. Brazil, China, the US, and Israel spend 2-4 per cent,” CSDR’s Verma said.

Innovations for Defence Excellence (iDEX) was launched in 2018 to bring startups, MSMEs, academia and innovators into defence technology. A total of 676 startups, MSMEs and innovators had joined the ecosystem; 58 prototypes worth ₹3,853 crore had received procurement clearance, and 45 contracts worth ₹2,326 crore had been signed by March. The numbers measure participation and procurement, not technological depth.

“We will have to invest at least 10 per cent of the revenue into R&D,” Abhishek Jain, cofounder of Pune-based smart and autonomous munitions manufacturing firm Zeus Numerix, said.

“There’s a flood of drone companies, but most are devoid of any know how,” Jain said. “Companies claim to have built their own systems but rely on externally sourced frames, motors and autopilots. Basically, nothing is theirs; they have just assembled it.”

This creates a further challenge of “white labelling”, a problem former chief of defence staff, General Anil Chauhan (retired), called a serious threat to the domestic defence ecosystem.

The Indian Army designated 2026 the “year of networking and data-centricity”, aiming to improve connectivity, real-time decision-making and combat effectiveness. But Bhonsle cautions that having a concept does not mean having capability. On artificial intelligence and data-centric warfare, he said India was still “in the first stage of developing the concept and the doctrine”.

“We have iDEX, state governments, the Department of Defence Production, the Society of Indian Defence Manufacturers, the Confederation of Indian Industry — everybody is doing something,” Bhonsle said.

“There isn’t much shortage of money, but there is a serious gap of systems engineers in the country who can think about a system as a whole”, said Zeus Numerix’s Jain. “IP is only given when you do your own R&D,” he added.

The challenge, however, lies less in Indian IP laws and more in how ownership is structured for the products.

There are a couple of places to actually watch this play out. The Safran-GTRE engine venture and the Reliance-Rolls-Royce partnership for Amca’s later variants are both trying to do the one thing India hasn’t managed in over four decades — design and own a jet engine, not license one.

If either gets there, that’s the clearest signal yet that India has crossed from assembling weapons to building them. If neither does, the industry keeps growing the way it has: bigger numbers, same dependency.

“Research has to produce IP. IP produces competitive products, products generate procurement and export revenue, and that revenue finances the next generation of research. This is the positive cycle,” Jain said. “This is when a real industrial complex gets built.”

However, the transition will require patience and capital investment. Experts point to a series of gaps that India must close to build a true military-industrial complex — sustained government funding for strategic programmes, greater private-sector investment in R&D, procurement reforms, and a faster path for startup and industry technologies to move from prototype to induction. India has most of the pieces right now: production, exports, and a startup ecosystem. But a defence-manufacturing base does not become a military-industrial complex until those pieces are connected. Closing these gaps will be a step in that direction.