India’s defence sector is transforming as the private sector storms in, driving modernisation

IT’S BUSINESS AS USUAL on the misty November morning at L&T Precision Engineering & System’s factory at Talegaon near Mumbai. Senior army officers have come to the Strategic Systems Complex to check out work-in-progress on various shop floors, and some soldiers are training on the new weapons systems. The Fortune India team is allowed inside the restricted facility to look closely at the war machines in the making. Company officials have arranged some multi-barrel artillery guns, truck-mounted rocket launchers and torpedo canisters for the photo shoot in the large courtyard, which now looks like an army parade ground.

In one corner of the open grounds, a battle tank brought in from a nearby Army unit is fording an artificial river on a quickly assembled steel bridge built by Larsen & Toubro, one of India’s largest private-sector defence manufacturers in terms of revenue and product basket.

The engineering major’s defence units, spread across Talegaon, Hazira, Chennai, Bengaluru and Coimbatore, do everything from prototyping, testing, validation to manufacturing of serial production jobs for the Indian Armed Forces and global customers.

Cut to the headquarters of Bharat Forge Ltd. in Pune Cantonment, also home to the Indian Army’s Southern Command. Chairman and MD Baba Kalyani, who made his name forging automobile parts, emerges from a meeting with visiting army brass. Bharat Forge and the Ministry of Defence are hammering out a deal for making the 155mm/52 calibre advanced towed artillery gun system (ATAGS), a howitzer mainly developed from scratch by the DRDO’s Armament Research & Development Establishment and other DRDO labs, in a project started in 2013 to replace old artillery guns. Now the development of ATAGS is seen as a symbol of India’s prowess in making world-class howitzers.

The 19-tonne gun, mobile on three pairs of wheels, can fire up to 48 kilometres, compared with same-class overseas artillery guns’ standard range of about 40 kilometres.

It has a sustained firing capability of 60 rounds in 60 minutes, even bursting five rounds in just one minute. Bharat Forge has waited 14 years for this moment: going from making parts to the whole shebang.

“We exhibited our first artillery gun at the first Defence Expo (in 2012), and officers came, looked at it, and walked away. Nobody took us seriously… People didn’t believe that some Indian company sitting in Pune making automotive components could make an artillery gun,” Baba Kalyani, reminisces about the struggle to get into the armaments business. Born and brought up in an army area, forging military equipment was a natural business extension for Baba Kalyani, who made Bharat Forge the world’s largest forging company. Its defence sector subsidiary Kalyani Strategic Systems Ltd. (KSSL) is already a leading global artillery gun maker, in about ten different platforms. “Whatever we make is meant for global markets,’’ says Kalyani.

By March, the army may place a ₹6,000-7,000-crore order for 307 units of the ATAGS. In Mumbai, Sukaran Singh, CEO and MD of Tata Advanced Systems Ltd., whose businesses range from assembling military transport aircraft to making helicopter parts and specialised trucks spread across many units in India, is also eyeing the ATAGS contract. Bharat Forge and TASL were the final qualified development and manufacturing partners in this Make in India project.

TASL, a wholly-owned subsidiary of Tata Sons, is building the first assembly line in India for a large military transport aircraft, the Airbus C295. The aircraft, which can carry 70 troops or a payload of 9,250kg, will be assembled in Vadodara, Gujarat. It will replace the Avro 748, which the Indian Air Force began using over six decades ago. Airbus Defence & Space, a unit of Airbus, chose TASL as its Indian partner, and the first ‘Made in India’ C-295 will roll out in September 2026.

“Building advanced platforms in aerospace and defence is critical for India’s self-reliance in defence, and for projecting strategically in global markets. At Tata Advanced Systems, this focus drives everything we do, strengthened via strategic partnerships and tie-ups with leading OEMs and the government,” says Singh.

In Hyderabad, Ashok Atluri, CMD, Zen Technologies, is also excited about the new world. Zen, which makes anti-drone systems and simulators that train soldiers to fire guns and missiles, lob grenades, and fly UAVs (unmanned aerial vehicles), has been waiting for the big numbers since its incorporation in 1993. Zen reported revenues of ₹444 crore in FY24, against ₹168 crore in FY23 and is aiming for ₹900 crore in FY25. “We are now one of the largest global players in land training simulators and have exported to 13 countries, competing with the world’s best,” says Atluri.

What Lit The Fuse?

The government’s ‘Make in India’ (2014) and ‘Aatmanirbhar Bharat’ (2020) initiatives set off the explosion of business opportunities in the defence sector, which stands to feast on orders adding up to $138 billion over the decade from FY24, according to a report by Nomura Securities. Defence aerospace orders will account for $50 billion, Navy ships $38 billion, and missiles and artillery $21 billion.

Defence industry veterans such as TASL, L&T, Bharat Forge, Mahindra Defence, Godrej, MKU and Solar Industries, and newcomers such as Adani Defence & Aerospace, JSW Defence, Jindal Defence, IdeaForge have drawn up battle plans to win the business.

But how will India’s armed forces gain? And how will defence exports power the economy? According to the Stockholm International Peace Research Institute, a leading conflict think-tank, India was the fourth-largest military spender in the world in 2023: it spent $83.6 billion, up 4.2% over 2022. India was also the largest arms importer in 2023, with 36% coming from Russia (against over 50% a decade ago), followed by the U.S. and France, which together accounted for 46%.

The import numbers could shrink, following more local manufacture. India’s domestic defence production peaked at ₹1,26,887 crore in FY24, up nearly 17% from ₹1,08,684 crore in FY23. Defence public-sector units (DPSUs) and other government units accounted for 79% of this. (The DPSUs are the new avatar of the 41 factories of the government’s Ordnance Factory Board, reorganised into seven companies in 2021.) The private sector’s share was 21%, or ₹26,506 crore, compared with ₹16,500 crore five years ago.

India’s defence exports were ₹21,083 crore in FY24, up nearly 32% over the ₹15,920 crore reported in FY23. Of this, the private sector accounted for 60%. The Ministry of Defence (MoD) says exports of defence equipment have grown 31 times in the last 10 years, from ₹4,312 crore in the decade before 2014 to ₹88,319 crore in the decade following FY15. The transformation has been powered by policy changes that have simplified procedures, encouraged local production and roped in the private sector with ‘self-sufficiency’ as the motto.

Kalyani lauds the fast-tracking of policy changes by Prime Minister Narendra Modi and his first defence minister, Manohar Parrikar, an IIT engineer by training who held the portfolio from 2014-2017. “An engineer who could understand every nut and bolt that goes into a defence product, he was clear that the policy needed changes,” says Kalyani, who has an MS from MIT and a BE in mechanical engineering from BITS Pilani. Parrikar was Goa’s chief minister when he died in March 2019.

In 2020, four months after announcing the Aatmanirbhar Bharat Project amid Covid-19, the government announced a Defence Acquisition Procedure, which gave final shape to the changes being effected to the Defence Procurement Procedure of 2002. The new policy simplified rules to encourage more private participation and turn India into a manufacturing hub for defence equipment.

It's The Timeline!

Besides making foreign direct investment (FDI) easier, the new policy focuses on timelines (‘positive indigenisation lists’ or PILs in MoD jargon’) for making import replacement items. Import dependent in the past, India lacks technology in many areas of defence products, mainly engines and key critical parts. It will take time for the DPSUs and the private sector to develop those capabilities. The indigenisation lists with clear timelines till 2032 for every system, sub-systems and parts will help them prepare and master those technologies.

By July 2024, the defence ministry had notified timelines for 346 items that, if made in India, would save ₹1,048 crore on imports. Earlier, the Department of Defence Production, which controls the new-look OFB units and the other defence PSUs, had laid out timelines for 4,666 items to be made by DPSUs. Of these, 2,972 items have made the grade, saving ₹3,400 crore on import costs. The Department of Military Affairs, which the Chief of Defence Staff heads, had notified 509 items, including complex systems, sensors, weapons, and ammunition.

So far, the industry has been offered over 36,000 items for indigenisation and has succeeded with over 12,300. The DPSUs have placed orders worth ₹7,572 crore with domestic vendors. The Union Budget for FY25 allotted ₹1.72 lakh crore for defence capital procurement, 20.33% higher than the actual expenditure of FY23. Of this, 75% is from domestic sources.

The defence ministry has declared 2025 as the ‘Year of Reforms’ and promised to simplify procurement, speed up things and focus on emerging technologies. The aim: ₹3 lakh crore in defence production and ₹50,000 crore in defence exports by 2029. The FY25 target for defence production is ₹1,60,000 crore and exports ₹30,000 crore. Experts say the industry will take 3-5 years to realise big orders and revenues.

“It is a rigorous process and involves extensive testing to ensure quality and technological capabilities are of global standards,’’ says Arvind Sharma, partner, general corporate practice, Shardul Amarchand Mangaldas & Co.

The Defence Acquisition Council, empowered to identify long-term capital acquisitions, and the Defence Procurement Board, which implements these, have given the ‘Acceptance of Necessity’ stamp for 40 capital acquisition proposals worth ₹4,22,130 crore, with 94% or ₹3,97,584 crore to be procured locally. The AoN can be for ‘buy’ (outright purchase), ‘buy and make’, or ‘make’.

From Bit Roles To Hero

The private sector has become a stronger player in the ecosystem of the seven defence PSUs spawned by the 2021 recast of the OFB’s factories (the first set up in 1801). The Centre steered the creation of defence industrial corridors in Uttar Pradesh and Tamil Nadu.

The U.P. corridor has nodes at Lucknow, Kanpur, Jhansi, Aligarh, Chitrakoot and Agra. Kanpur has three defence PSUs: Advanced Weapons & Equipment India (which has eight factories across India making guns and parts), Gliders India (the new avatar of an OFB factory that used to make parachutes) and Troop Comforts Ltd (which makes clothes, tents and supplies).

Keeping them company is Adani’s missile and ammunition factory and new projects such as Modern Material & Sciences, which will make advanced clothing, Anant Technologies (satellites) and Netra Global (ammunition).

The UP corridor has attracted over 150 projects with a committed investment of ₹28,411 crore.

The TN corridor, which includes Chennai, Salem, Hosur, Coimbatore and Tiruchirappalli, has investment commitments of ₹21,825 crore. Projects include ₹2,305-crore modernisation of DPSU factories.

Reach For The Sky

The Airbus C-295 assembly line could be the launchpad for the next stage. According to the deal, 40 units will be manufactured and assembled in partnership with TASL at Vadodara FAL, while 16 will be delivered to the IAF in ‘fly-away’ condition from Airbus’ final assembly line in Seville, Spain. The Tata Boeing Aerospace joint venture, which has already supplied 250 plus main body parts for Boeing’s AH-64 Apache helicopters, is planning to have an FAL in India with Airbus for H125 helicopters. TASL also has separate deals with Air India and U.S. major Lockheed Martin to pursue military aircraft programmes and MROs in India.

Public sector Hindustan Aeronautics Ltd. (HAL), which makes fighter aircraft such as Tejas and Sukhoi and helicopters such as Cheetah, Chetak, and Cheetal, is already sitting on an orderbook of over ₹90,000 crore as of March 31, 2024. It recorded its highest-ever revenue of ₹29,810 crore in the last financial year. Some of the major orders are 70 trainer aircraft worth ₹6,828 crore and another order for six Dornier-228 aircraft for the IAF and two for the Coast Guard. In November 2024, the DAC notified an AoN worth ₹2.20 lakh crore covering the LCHs and HAL’s light combat aircraft Tejas Mk1A, upgrading the Sukhoi-30 MKI aircraft, and a September order to make 240 new engines for the Su-30MKI, worth ₹26,000 crore.

The defence forces want to phase out old light utility and combat helicopters. In 2015, India signed up with Russia to get 200 Kamov-226T twin-engine light utility helicopters (LUHs) — some to be imported and the rest made by HAL. But the deal has not progressed much.

In February 2023, HAL inaugurated India’s largest helicopter manufacturing facility spread over 615 acres at Tumakuru in Karnataka to produce indigenously designed and developed LUHs, LCHs and Indian Multi-Role Helicopters (IMRHs). HAL plans to produce more than 1,000 helicopters in the 3-15 tonnes range, eyeing ₹4 lakh crore business over 20 years. HAL, which is trying to develop its engines for some of them, has engine supply agreements with France’s Safran S.A. for helicopters and General Electric of USA for the Tejas fighters. The IAF immediately requires 100-plus 4.5 to 5th generation fighter jets to replace the Mirage 2000s and the old Soviet-built MiG jets, say sources.

India and the U.S. recently concluded a $3.5 billion deal to procure 31 Reaper drones (‘MQ-9B-armed High-Altitude Long Endurance Remotely Piloted Aircraft Systems’ in drone jargon). The Reaper can fly at 40,000 feet and stay airborne for 40 hours. Manufacturer General Atomics will build an MRO facility in India as an offset obligation.

New Ships And Submarines

January 15 became a red-letter day for the Indian Navy: it commissioned two ships and a submarine. They were the Nilgiri, the lead ship of the Project 17A stealth frigate class; Surat, the fourth and final ship of the Project 15B stealth destroyer class; and Vaghsheer, the sixth and final submarine of the Scorpene project. The Navy and Coast Guard are modernising. In the last 10 years, 33 ships and seven submarines were inducted by the Navy and another 60 vessels worth ₹1.50 lakh crore are in the making, Modi said in Mumbai, while launching the new vessels.

In 2023, the MoD placed a ₹19,600-crore order with Goa Shipyard and Garden Reach Shipbuilders & Engineers, Kolkata, to make 11 offshore patrol vessels. Cochin Shipyard is working on a ₹9,805-crore order to make six missile vessels with stealth capabilities. Hindustan Shipyard, Visakhapatnam, has a ₹19,000-crore contract for five fleet support ships.

The biggest contract ahead is worth ₹70,000 crore, for six diesel-electric submarines. The deal will likely be awarded to Mazagon Dock Shipbuilders and its partner Germany’s ThyssenKrupp Marine Systems. The bid of another shortlisted candidate — L&T with Spain’s Navantia — was found to be non-compliant by the defence ministry. L&T is also making three cadet training ships and two multi-purpose vessels at its greenfield shipyard at Kattupalli near Chennai.

Arms, Missiles & Ammunition

The army wants about 1,750 ‘Future Infantry Combat Vehicles’ to replace its Soviet-era BMPs, tracked vehicles like light tanks used by the mechanised infantry. The front runners for this deal include L&T, TASL, Mahindra and Bharat Forge. Until then, Armoured Vehicles Nigam Ltd, born out of the OFB’s restructuring, will upgrade some BMP2s.

Guns and artillery modernisation is a big focus. L&T, which supplied 100 K-9 Vajra T 155 howitzers developed along with South Korea’s Hanwha Aerospace in a ₹4,500-crore deal, recently got a repeat order worth ₹7,628 crore. L&T expects a big order for the Zorawar, a light tank designed and developed by the Combat Vehicles Research & Development Establishment, the Chennai-based laboratory of DRDO, with L&T as the industry partner.

The Zorawar has crossed a milestone by accurately firing several rounds at different ranges at an altitude of over 4,200 metres, a difficult feat because of low air pressure, extreme cold, and high wind speeds.

“We have very ambitious targets and will see our precision engineering and related businesses becoming substantial within the next 5 years,” says Arun T. Ramchandani, senior vice president of L&T Precision Engineering & Systems.

The L&T Group, which reported revenues of ₹2,21,113 crore in 2023-24, got ₹4,610 crore from its precision engineering and systems business, a 41% growth year-on-year.

TASL, which is also going to get the ATAGS order, also makes the Pinaka multi-barrel rocket launcher, armoured vehicles and truck-mounted howitzers. BEML (formerly Bharat Earth Movers Ltd.), a PSU, Mahindra and Ashok Leyland, make land-mine-proof troop carriers and light armoured vehicles.

The DRDO has a successful record in building missiles, with its pinnacle being the Agni V intercontinental ballistic missile, which can hit targets 5,000 km away with nuclear warheads. The BrahMos joint venture with Russia has been getting export orders. Other successful modern missile projects are the Pralay (150-500 km range), Astra MK-II air-to-air missile, and vertical launch short-range surface-to-air missiles.

The missile business is now attracting L&T, Godrej Aerospace, TASL, Adani, Bharat Forge and Solar Group.

Soldiers need the best guns. The army is replacing the homemade INSAS family of assault rifles in use since 1988. Advanced Weapons & Equipment India Ltd., the new avatar of former OFB factories making small arms and artillery guns, tied up with Russia’s Kalashnikov Concern and its factory in Amethi, U.P., and began making AK-203 assault rifles in January 2023.

Other large private companies in the ₹8,000-crore business of guns are Bharat Forge (which makes assault rifles, sniper rifles, and carbines), SSS Defence (which makes bolt-action sniper and assault rifles), and Adani Defence.

Solar Industries, Bharat Forge, Astra Defence Systems, and Adani have big plans in the ammunition business, now monopolised by former OFB units at Khadki near Pune, Nalanda and Varangaon, reorganised under Munition India.

Soldiers also need special clothing, night vision goggles, thermal imaging devices, bullet-proof vests and body armour. Among private sector companies in the act or eyeing it are MKU, Tata Advanced Materials (now part of TASL), Anjani Technoplast, Tombo Imaging, Paras Defence and StarWire India.

Electronics, Drones & Deep-tech

Radars, electronic warfare, avionics, communication systems, and missile guidance systems are other big opportunities. The market: around ₹50,000 crore. Traditional leaders such as BEL and HAL are getting competition from TASL, L&T Defence, MTAR Technologies, Alpha Design Technologies, Data Patterns and Rolta India.

The DAC approval in March 2023 for ₹70,500 crore domestic procurement included BrahMos missiles and Shakti EWS or early warning system, which detects and jams enemy radar at sea.

HAL and BEL are making drones: HAL, the DRDO-developed Rustom and CATS Warrior and Aura series, and BEL, the electronics bit such as anti-drone systems, sensors and communication equipment.

Adani has joined hands with Elbit Systems of Israel to make the Hermes drones, and TASL has brought in Israel Aerospace Industries to make the Heron and Searcher drones.

IdeaForge, the biggest listed company making drones, reported revenues of ₹314 crore in FY24, up from ₹186 crore the previous year. IdeaForge, which also makes UAVs for mine planning, land surveys and oil and gas exploration, got 75% of its revenues from defence supplies during the year. It makes Switch UAVs that can take off and land vertically, as well as the DRDO-developed Netra drones. Garuda Aerospace makes drones for agriculture and is getting into defence drones.

Then, there are start-ups in AI, cyber defence, robotics, and advanced manufacturing for military applications. Tonbo Imaging makes night vision, thermal imaging, and electro-optical systems. BigBang Boom Solutions offers hybrid personal combat armour and anti-drone defence systems. It has brought down heads-up displays from fighter jets to battle tanks, giving crews a 360-degree view without having to poke their head out of the turret or get a restricted picture from one slot.

Will all this translate into better-equipped armed forces and power the economy’s growth with export earnings? Only if things happen fast and troops don’t have to wait years to get a rifle that doesn’t jam in Siachen, the Air Force gets more fighter jets, and the Navy gets more ships.