India's defence procurement reform and the Make in India initiative in aerospace and defence are advancing at a pace and with a policy consistency that is beginning to produce measurable outcomes in domestic manufacturing capability, export ambition, and foreign OEM partnership depth. The structural drivers of this transformation are well-established: India is the world's second-largest arms importer and has been for much of the past two decades, a position that reflects both the scale of its security requirements and the historical weakness of domestic defence manufacturing that has made import dependency the path of least resistance. The strategic, fiscal, and industrial policy imperatives to change this position have been clear for decades; what has changed in the current cycle is the policy implementation intensity and the administrative reform that is beginning to remove the procedural barriers that previously slowed indigenisation despite strong stated intent.
The Defence Acquisition Procedure reforms, the creation of the Defence Industrial Corridors in Uttar Pradesh and Tamil Nadu, the government-mandated indigenisation timelines for specific equipment categories, and the progressive increases in the foreign direct investment limit for the defence sector have collectively created a policy environment that is more genuinely supportive of domestic defence manufacturing than previous iterations of indigenisation policy. The political commitment at the highest level -- demonstrated through the frequency with which defence manufacturing milestones are highlighted in government communications and through the scale of the production-linked incentive scheme allocations for the sector -- provides a policy consistency signal that foreign OEMs and domestic investors require before committing to the multi-year manufacturing capability building that meaningful defence industrial development requires.
PLI Scheme and the Private Sector Entry
The Production Linked Incentive scheme for defence manufacturing -- which provides financial incentives to domestic manufacturers who achieve defined production targets in specified defence equipment categories -- has been the most direct instrument for inducing private sector investment in defence manufacturing capability that has historically been concentrated in the Defence Public Sector Undertakings. The DPSUs -- HAL, BEL, BEML, Bharat Dynamics, Ordnance Factory Board successor entities -- have been the primary domestic defence manufacturing base, but their production efficiency, technology absorption rate, and new product development velocity have been constrained by the organisational characteristics of public sector entities operating in a procurement environment with limited competition.
The entry of private sector companies into defence manufacturing -- through the PLI scheme, through the strategic partnership model that designates private companies as primary manufacturers for specific platform categories, and through the mandatory offset requirements that require foreign defence vendors to source a defined percentage of contract value from India -- is diversifying the domestic defence manufacturing base beyond the DPSUs. Companies including Tata Advanced Systems, Mahindra Defence, Larsen and Toubro Defence, and a growing ecosystem of smaller Tier 2 and Tier 3 suppliers are building defence manufacturing capabilities that are supported by the commercial management practices and capital allocation discipline that private sector operations apply.
The strategic partnership model -- under which a single private sector lead system integrator is selected for each major platform category (submarines, helicopters, fighter aircraft, armoured vehicles) and is responsible for partnering with a foreign OEM and developing domestic content over successive production runs -- has progressed more slowly than originally intended due to the complexity of the selection process and the procurement decision timelines that Indian defence acquisition has historically produced. But the models for submarines (Project 75 India) and advanced helicopters are progressing, and the manufacturing infrastructure investment that the designated lead integrators are making is creating production capability that will have export applications beyond the initial domestic programmes.
HAL's Tejas and the Fighter Production Ramp
The Tejas light combat aircraft -- India's indigenously developed fighter programme that has been in development for four decades and has finally reached series production -- is the flagship of India's defence indigenisation story and the most visible indicator of how far domestic aerospace manufacturing has progressed from its starting point. The Tejas Mk1A, with its improved radar, electronic warfare suite, and beyond-visual-range missile capability, is in active production at Hindustan Aeronautics Limited's Nashik and Bengaluru facilities with a production rate that is being progressively ramped to meet the Indian Air Force's order for over eighty aircraft.
The Tejas programme's journey from concept to series production has been accompanied by a substantial build-up of domestic aerospace component manufacturing capability. The requirement to manufacture airframes, aero engines (under licence from General Electric for the F404 engines), avionics, radar systems, and weapons systems domestically has created a supplier ecosystem that now has capabilities applicable to civil aerospace and export defence markets as well as to the Tejas programme specifically. The engine licence manufacturing and technology transfer arrangements are particularly significant because aero engine manufacturing is among the most technically demanding aerospace capabilities and has historically been the area where domestic content requirements have been hardest to fulfil.
Export Ambition and the Defence Export Target
India's defence export target -- announced as reaching five billion US dollars per year by 2025 and subsequently pushed to a revised timeline as domestic order fulfilment has taken priority -- reflects the government's recognition that a sustainable domestic defence industry requires an export market that provides the volume throughput to optimise production economics and justify the R&D investment in next-generation systems. Defence exports from India have grown substantially from a very low base but remain concentrated in a relatively narrow product range: ammunition and explosives from the ordnance factories, naval systems including offshore patrol vessels and training ships to partner countries, and a growing range of electronic systems and components.
The aspirational product categories for Indian defence exports -- the Tejas fighter to Malaysia, Argentina, and other markets; the BrahMos supersonic cruise missile to Philippines, Indonesia, and Gulf customers; the Advanced Towed Artillery Gun System to export customers -- represent products with genuine market potential but also face competition from well-established Western and Russian suppliers with longer track records, more extensive after-sales networks, and deeper diplomatic relationships in target markets. The BrahMos export programme, which has concluded significant contracts with the Philippines and is in discussions with multiple other customers, is the most commercially advanced of the higher-value export programmes and represents a template for what India's defence export industry can achieve.
Top 10 Companies in This Space
- Hindustan Aeronautics Limited (HAL) -- India's primary military aircraft manufacturer, Tejas fighter production and licensed manufacture of helicopters and transport aircraft
- Bharat Electronics Limited (BEL) -- Indian defence electronics DPSU, radar, avionics, communication systems and electronic warfare equipment
- Tata Advanced Systems -- Tata Group's aerospace and defence manufacturing arm, C-295 fuselage manufacture and integrated systems
- Larsen and Toubro Defence -- Indian engineering major's defence division, naval vessels, artillery systems and defence electronics
- Mahindra Defence Systems -- armoured vehicles and defence systems, Mahindra Group's defence manufacturing subsidiary
- BrahMos Aerospace -- India-Russia joint venture, supersonic cruise missile production and export programme
- Bharat Dynamics Limited (BDL) -- Indian missile and underwater weapons DPSU, Akash and Astra surface-to-air missiles and torpedoes
- Airbus India -- C-295 transport aircraft co-production with Tata, establishing civil and military aerospace manufacturing in India
- GE Aerospace India -- F404 engine licensed manufacturing for Tejas, deepening aero engine technology transfer with HAL
- Adani Defence and Aerospace -- private sector entrant, small arms ammunition and drone manufacturing with ambitions across defence platforms
Our Take
India's defence manufacturing transformation is real and accelerating, but investors should calibrate expectations to the pace at which complex defence industrial ecosystems actually develop. The DPSUs -- HAL, BEL, BDL -- are the most accessible investment exposure and are benefiting from sustained domestic order growth that is providing the production volumes needed to justify manufacturing investment. The private sector companies -- Tata Advanced Systems, L&T Defence, Mahindra Defence -- are building capabilities that will take a decade to mature into significant defence revenue contributions but are establishing positions that will be very difficult for new entrants to replicate once the manufacturing ecosystem is established. BrahMos is the most commercially compelling export story because it offers a proven, highly capable product in a segment -- supersonic cruise missiles -- where demand from regional powers concerned about great power competition is structurally growing. The Airbus and GE aerospace partnerships are the most important technology transfer relationships for building the advanced manufacturing capability that Indian aerospace will need for the next generation of platforms. -- Marcus Reid, MarketsNXT