India Targets $2.3 Trillion Defense Market with 2025 Reforms

India is positioning itself as a significant player in the global aerospace and defence sector, with projected requirements exceeding USD 2.3 trillion by 2030. This ambitious growth is fueled by an increase in defence budgets, modernization initiatives, and a strong push for indigenous manufacturing. Central to this transformation are policies aimed at self-reliance, technological advancement, and strategic partnerships, all of which are critical to enhancing India’s capabilities in military technology.

The Indian government has identified defence procurement as a cornerstone of its national security strategy, viewing it as a key driver of economic growth. The integration of advanced technologies into defence practices is likened to a digital revolution, underscoring the importance of effective governance and enterprise involvement. As the defence sector evolves, policymakers are tasked with adapting to these changes to maximize potential benefits.

Technology Transfer as a Key Strategy

A crucial aspect of India’s defence reform strategy is the emphasis on technology transfer (ToT). This process involves either developing technology through research and development or acquiring it through established vendors. According to a comprehensive book by Lakshman Singh and Gaurav Yadav of Hindustan Aeronautics Limited, embracing ToT is essential for India to compete effectively on the global stage.

The current procurement landscape often sees limited ToT offerings, typically ranging from 30% to 40%. Core elements of the technology are frequently withheld due to strategic concerns or corporate policies. This limitation complicates efforts to indigenize production, as the lack of technical information from original equipment manufacturers (OEMs) poses significant challenges. Singh highlights the need for substantial investment to improve ToT content, and he notes that the dependency on imports for critical materials further complicates the situation.

The Technical Evaluation Committee (TEC) plays a vital role in assessing the technical merits of proposals, ensuring they meet the required standards. The armed forces, in conjunction with agencies such as the Defence Research and Development Organisation (DRDO) and Defence Quality Assurance (DGQA), conduct thorough evaluations during the trial phase.

Reforming Defence Procurement Processes

The procurement process in India is complex, particularly at the Contract Negotiation Committee (CNC) stage, which follows successful trials. Reforms are essential to streamline operations and focus on key objectives, such as ensuring effective ToT transfer and rationalizing costs without compromising quality. The Defence Acquisition Procedure (DAP) 2020 has introduced new acquisition categories aimed at promoting domestic manufacturing while maintaining foreign investment.

Key categories in the DAP include “Buy (Indian – IDDM)” and “Make-I,” both designed to foster indigenous capabilities. Despite these initiatives, actual foreign direct investment (FDI) in defence has remained low, prompting calls for a more strategic approach to attract investment and facilitate technology transfer.

To enhance the ease of doing business, Project Management Units (PMUs) have been established to ensure timely procurement decisions. The Acceptance of Necessity (AoN) process has also been streamlined. However, the final stages of financial negotiations often lack a defined timeline, causing delays that can hinder project progress.

The DAP 2020 aims to simplify trial processes, allowing vendors to rectify defects during trials and reducing unnecessary duplication through third-party inspections. Additionally, the Ministry of Defence (MoD) is working towards compressing the acquisition timeline from approximately 96 weeks to 24 weeks by synchronizing various processes.

As part of ongoing reforms, the DAP 2020 also includes provisions for government-to-government (G2G) deals, which are exempt from offset obligations. However, the Comptroller and Auditor General (CAG) has raised concerns about the implementation of offsets and the lack of meaningful technology transfer associated with them.

Looking ahead, India’s defence sector aims to bolster research and development, particularly in emerging technologies such as artificial intelligence (AI) and cyber capabilities. Currently, India’s defence R&D spending lags behind the international average, standing at 1.2% of GDP compared to 3.4% elsewhere. Notable exceptions include firms like Hindustan Aeronautics Limited, with a spending rate of 9.3%.

The ongoing review of the DAP in 2025 seeks to refine these initiatives further, enhancing accountability while promoting rapid technological adoption. The overarching goal remains clear: to establish India as a formidable global defence manufacturing hub, capable of supporting both domestic needs and international partnerships.