India’s defence production has increased sharply since FY17, with private-sector output growing faster than overall production as policy reforms open more strategic programmes to industry.
NEW DELHI: India’s defence sector is entering a significant phase of transformation, with private companies playing an increasingly important role in defence manufacturing and strategic programmes.
Unlike most sectors of the Indian economy, defence did not immediately benefit from the economic liberalisation initiated in 1991 under the P.V. Narasimha Rao government. The sector remained largely reserved for state-owned enterprises until 2001, when private-sector participation was formally opened.
Defence Production Rises Sharply
India’s overall defence production has increased by around 140% since FY17, while output from the private sector has grown by approximately 198% during the same period.
The faster growth of private-sector production reflects the impact of policy changes designed to expand industrial participation, promote domestic manufacturing and reduce dependence on defence imports.
Reforms Created the Foundation
According to Pawan Khatter, Partner and National Aerospace and Defence Leader at EY India, the foundations for this transformation were laid by the Industrial Policy of 1991.
The policy shifted India from a predominantly state-controlled economic framework towards a market-oriented system. Defence production subsequently moved from a reserved category to a licensed regime, followed by further liberalisation through changes in foreign direct investment (FDI), defence procurement policies and private-sector participation.
Private Sector Becomes More Important
Captain Vishal Kanwar (Retd.), Partner and Leader for Aerospace, Defence and Space at PwC, described the opening of defence manufacturing to private companies as one of the sector’s most structurally significant reforms.
Over time, the reforms have expanded opportunities for private companies across areas including aerospace, missiles, electronics, naval systems, unmanned platforms and other defence technologies.
The reform process eventually contributed to the introduction of the Defence Acquisition Procedure (DAP) 2020, which placed greater emphasis on indigenous production and domestic industry participation.
DAP 2026 Could Shape the Next Phase
The next major policy development is expected to be the revised Defence Acquisition Procedure (DAP) 2026.
The new framework could further influence how defence contracts are structured, how domestic companies participate in major programmes and how India balances indigenisation, technology development and strategic capability building.
A New Phase for India’s Defence Industry
The combination of rising defence production, growing private-sector participation and successive procurement reforms indicates that India’s defence industry is moving beyond its traditional dependence on government-owned manufacturers.
The emerging model increasingly brings together public-sector defence companies, private manufacturers, startups, technology firms and global defence companies, creating a broader industrial ecosystem.
For India, the objective is not only to increase defence production but also to build domestic technological capabilities, strengthen supply chains, create exports and improve strategic self-reliance.
The next phase of reforms, particularly the expected DAP 2026, could therefore prove critical in determining how quickly India’s private defence industry can move from manufacturing and assembly towards high-end design, innovation and globally competitive defence technologies.
