Fast forward to today: The private sector—including larger companies—contributes approximately 21% of the total defence production. Pushed by government schemes, the micro small and medium enterprises (MSMEs) and startups have also now started to venture into this sector.

The overall defence budget, estimated at ₹2.53 lakh crore in 2013–14 rose to ₹7.85 lakh crore in 2026–27. 

Just recently, the government announced that India’s annual defence production touched an all-time high of ₹1.78 lakh crore 2025-26, an increase of 15.6% over the previous financial year. Importantly this showcases a 110% increase since 2020-21 when it was ₹84,643 crore.

On paper these figures seem encouraging. However, the defence allocation in terms of percentage has been decreasing from about 3% in the 2000s to less than 2% now. 

Manufacturing defence equipment in India is not only key for self-reliance—especially at a time when the world is mired in uncertainties and protectionism leading to concerns over supply-side management—it is also important for jobs. And for that India needs to carefully provide policy support to the MSMEs and startups.

Long Way For MSMEs, Startups

A host of MSMEs and startups are now entering the segment with the government carving out several schemes to promote their participation, there is a long way for them to tread. According to government data, there are about 17,000 MSMEs and more than 600 iDEX (Innovations for Defence Excellence) initiative linked startups, which have been specifically identified by the Ministry of Defence which provide the required assistance though funds and mentorship.

An analyst tracking the defence sector told The Secretariat that while the exact comparable MSME contribution percentage in the total pie is not available, the ecosystem continues to be considerably smaller and less innovation-driven.

India Vs Other Countries

Several countries actively push for domestic manufacturing through various schemes suited to their specific needs. Though India has made substantial progress in defence production, it remains import-dependent for key raw materials.

Manohar Parrikar Institute for Defence Studies and Analyses, commonly known as IDSA, pointed out that several countries, including the UK and France, have put in place a centralised system of procurement. “France, in particular, has been highly successful in promoting a domestic-industry-driven procurement system,” it said, adding that it is one of the few countries in the world to have developed an advanced defence manufacturing base capable of producing the full spectrum of military items, including nuclear weapons. The study highlighted that about 90% of France’s defence requirement is produced indigenously.

Most Western defence startups focus on emerging technologies—high-risk, high-reward domains that often struggle to take shape within large companies with large, bureaucratic organizations.

Amit Batra, AstraYAN, a deep-tech startup  said that broadly two areas need focus. "First, bridging critical gaps in foundational technologies, areas or systems where we still rely heavily on imports. These are not always glamorous problems, but they are essential. Second, we should continue pushing toward deep-tech and futuristic innovations, just like the Western ecosystems. In both these areas, startups have the potential to address the gaps very effectively, especially in domains which are not very infrastructure-heavy,” he said.

Besides, other countries have substantially scaled up the research and development (R&D) segment. India is progressing rapidly but can further improve production scale, private R&D investment, certification speed and global supply-chain presence. 

The US, South Korea and several nations in Europe have already been actively promoting MSMEs and startups to get into the defence sector. 

Take the example South Korea. The Asian economic giant instead of merely exporting finished defence goods, is coming up with policies which would facilitate technology transfers and local manufacturing partnerships with countries in West Asia and Europe. West Asian economies are now aggressively focusing on sprucing the defence industry.

The Fikra Forum noted that countries such as Saudi Arabia and the UAE have poured billions into their arms localization programs in ambitious initiatives such as Saudi Vision 2030 and the UAE’s Tawazun Economic Program.

According to the report, South Korea is positioning itself “as a strikingly cost effective and reliable defence partner for these initiatives, rapidly expanding its defense industry and demonstrating both technical finesse and the desire to localize production.” Following South Korea’s path, Egypt has also decided to “to produce Hanwha Defense’s K9 artillery pieces because South Korea’s deals with Turkey and Poland demonstrated how its system can be adapted to local industry,” the report added.

The analyst underlined the need for India to identify such opportunities and cash in. “The idea is to be vigilant and nimble footed, what South Korea is doing is something India should have also cashed in on,” the analyst said, adding that New Delhi must open its horizon.

India’s ethos of strategic autonomy underlining the ‘nation first’ policy further amplifies the need to steer clear of the so called “blocks.”

The report noted that since South Korea maintains good relations with both the United States and key Middle Eastern countries such as Egypt, Saudi Arabia, and the UAE, it can sell without signaling bloc politics.

“India needs to look at its own dynamics and chart out effective strategies,” the analyst said.

India’s defence requirements are primarily sourced from the US, Russia, France, Israel.

Push To Promote Make In India

ADITI, iDEX, the Technology Development Fund, SRIJAN, Make-I/II/III, positive indigenisation lists and defence industrial corridors. These initiatives aim to promote domestic manufacturing through grants, development contracts, procurement opportunities and clearer entry routes for private companies, startups and MSMEs.

What MSMEs Need

For MSMEs, which often fight liquidity crunches, stable policy support and timely payments are key. “Greater access to patient capital, defence-testing facilities and certification support would help promising MSMEs scale sustainably,” the analyst said, adding that India can also augment domestic manufacturing by encouraging long-term partnerships between DPSUs, MSMEs, academia and startups.

That apart, larger indigenous orders, common testing infrastructure, export financing and integration into global Original Equipment Manufacturer (OEM) supply chains would also strengthen both scale and competitiveness.

Defence MSMEs, Startups: Their Voices

“India is emerging as a credible global producer, though it can move closer to leading international ecosystems by providing larger and faster procurement orders, patient development capital, shared testing infrastructure and stronger integration of MSMEs into global supply chains,” Raghu Adla, Founder & CEO, Paninian Aerospace told The Secretariat.

“The push for self-reliance has opened historic opportunities, transitioning Indian MSMEs from basic component manufacturers to high-precision co-developers in global supply chains,” Ashish Kansal, CEO & Director, SMPP said. But he underlined the need to sustaining the momentum. “That requires stronger partnerships with global OEMs and the road ahead lies in our MSMEs driving the next wave of India’s defence export boom,” he pointed out.

“Going forward, continued focus on faster procurement, timely payment cycles, sustained production opportunities and collaborative R&D will further strengthen the sector. The agility of MSMEs enables rapid innovation and faster development of technologies that can effectively support the evolving needs of the Armed Forces and contribute to India’s emergence as a globally competitive defence manufacturing hub,” Sandeep Agarwal, Chairman, Bharati Defence & Infrastructure Ltd. and Exicom Technologies India Pvt. Ltd added.