For strategic autonomy, India needs to build its own technology for defence

In today's geopolitically charged and polarized world, India needs to develop its own technology in the defence sector to attain meaningful strategic autonomy, experts emphasized in a panel discussion at the Mint India Investment Summit 2024.

The government has set a target of over ₹3 trillion of capital acquisition by 2028-29, nearly double the current ₹1.7 trillion, offering a significant opportunity for domestic companies. Furthermore, 509 platforms and 4,666 components are reserved exclusively for domestic production.

“The ability of Indian industry today to fundamentally conceptualize from technology to a product to a system to a full fledged platform is fully recognized,” said Jayant Patil, member of executive committee & adviser, defence and smart technology, to chairman and managing director at Larsen & Toubro (L&T). “It is a journey that started more than two decades ago in 2002 and with incremental steps taken over time we are now in a position where 92% of our future defence requirement will be met through the domestic industry.”

L&T, a pioneer in the sector, began its investments 18 years prior to the privatization of the industry, gaining immediate benefits from liberalization. However, Patil acknowledged that the development of the supply chain has been a gradual process.

“In 2002, there were only two big private players and maybe 500-600 small entrepreneurs. Today there are 10 large companies and 12,000 MSMEs in the country,” Patil said. “We are fighting a four front war and cannot function as we used to in the past. Gone are the days of getting hardware from overseas and building the software here. If we want strategic autonomy it will come only by creating IP and being a master of your destiny.”

The discussion also touched upon the importance of research and development (R&D), assembly, scaling, and testing capabilities. With domestic demand providing a robust base for growth, the export potential of Indian defence equipment, expected to reach ₹25,000-30,000 crore by 2026 from ₹20,000 crore this year, positions India among the top 20 defence exporters globally.

Arjun Rajagopalan of Deloitte India underscored the necessity of building an in-house ecosystem for supply chain reliability, alongside the critical roles of assembly, scaling, and testing capabilities.

Ideaforge, a leading drone supplier for the Indian armed forces, exemplifies the new age companies entering the defence sector. 

“Our split is very heavily skewed towards defence—almost 90% in last quarter,” said Ankit Mehta, CEO, Ideaforge. “Massive pace of induction is happening and will continue to happen going forward. We are right now trying to scale up and fill the deficit in demand and supply.”

The sector maybe booming right now but it has had its share of challenges in the past, mostly related to availability of capital. Measures like overhauling defence procurement policies have attracted investment in the sector.

“There has been a substantial overhaul in terms of defence acquisition and procurement policies. The offset contract thresholds increased from $36 to $240 million threshold level. 23 lease agreements for transfer of technology has been signed up and it has started to give us defence production value of $14 billion in FY23,” said Rajagopalan. “Further, FDI cap has gone up from 49 to 74% and the impact of this is there are today $13.2 billion offset obligations to be discharged by 2031.”