Defence Manufacturing

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India’s defence sector is one the strategic sectors of Indian economy. India has the third largest armed forces in the world and is one of the largest importers of conventional defence equipment. India boasts a strong Defence industrial base, with nine Defence Public Sector Units (DPSUs), 41 ordnance factories, 50 dedicated research and development labs and several private players.

India’s total expenditure on modernization and equipment in the defence sector has witnessed substantial growth over time. The defence budget accounted for nearly 15.5 percent of the total Central Government expenditure in 2020-21. Defence equipment in India are mainly manufactured by DPSUs and Ordnance factories, which together account for more than 68 percent of the total defence production in India. The Government has allowed defence production is allowed by the private sector. In 2019-20, private players accounted for approximately 23 percent of the total defence production in India. India’s defence production stood at ₹ 51807 crores in 2019-20, as compared to ₹ 80558 crores in 2018-19, witnessed a decline of (-) 35.7 percent. Production from ordnance factories recorded the largest decline of (-) 57.30 percent, followed by DPSUs (-32.7 percent), defence private companies (-31.56 percent) and Other PSUs/JVs (-22.29 percent).

Trends in Defence Production in India (As on 5/3/2020)

(₹ in Crores)

Production Unit 2016-17 2017-18 2018-19 2019-20 % Growth
Defence Public Sector Undertaking(DPSUs) 40427 43482 44825 30134 -32.77
Ordinance Factory Board (OFB) 14825 14829 12816 5472 -57.30
Other PSUs/ JVs 4698 5180 5567 4326 -22.29
Defence Private Companies 14104 15347 17350 11875 -31.56
Total 74054 78838 80558 51807 -35.69
Source: Ministry of Defence

A total of 2593 projects have been approved by DPSUs/ OFB and 47 projects by Department of Defence Production for manufacturing of defence equipment(as on 24/4/2020). Under the Mission Raksha Gyan Shakti, an initiative to provide a major fillip to culture of innovation and Intellectual Property Rights(IPRs) in the defense industry, a total of 736 IPRs were filed by various production units in public and private sector(upto May 2020).

The export from defence sector stood at US$ 166 million during 2019-20 and registered a negative CAGR of (-)49.5 percent between 2014-15 and 2019-20. However, products such as spring, air or gas guns and pistols, truncheons, and other non-firearms;parts and accessories for weapons; bombs, grenades, torpedoes, mines, missiles, cartridges and other ammunition and projectiles; swords, cutlasses, bayonets, lances and similar arms and parts thereof, and scabbards and sheaths registered positive CAGRs over the same period of 70.40 percent, 14.31 percent, 22.85 percent and 1.18 percent, respectively. The export of vessels, warships and boats witnessed substantial CAGR of more than 136 percent during the same period.

Some of the major export destinations for defence products have been Italy, Maldives, Sri Lanka, Russia, France, Nepal, Mauritius, Sri Lanka, Israel, Egypt, UAE, Bhutan, Ethiopia, Saudi Arabia, Philippines, Poland, Spain and Chile etc. The major defence items being exported are Personal Protective items, Offshore Patrol Vessels, ALH Helicopter, SU Avionics, Bharati Radio, Coastal Surveillance Systems, Kavach Mod II Launcher and FCS, Spares for Radar, Electronic System and Light Engineering Mechanical Parts etc.

Trends in Defence Exports

(In US$ Million)

Description 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 % CAGR (FY15-20)
Tanks and other armoured fighting vehicles 46.90 38.32 22.37 0.00 1.70 0.12 -69.88
Balloons and dirigibles; gliders, hang gliders and other non-powered aircraft 0.44 0.21 0.15 0.47 0.79 0.24 -11.77
Powered aircraft "e.g. Helicopters and aeroplanes"; spacecraft, incl. Satellites 4601.34 2368.84 787.88 212.15 77.03 24.45 -64.92
Parachutes, incl. Dirigible parachutes and paragliders, and roto chutes; parts thereof 176.08 0.00 0.19 0.94 0.80 0.46 -69.59
Aircraft launching gear (excluding motor winches for launching gliders); deck-arrestor or similar 57.29 39.33 25.62 3.90 10.89 23.23 -16.52
Vessels, incl. Warships and lifeboats 0.00 0.05 153.65 0.00 0.01 1.66 136.68
Military weapons, incl. Sub-machine guns 7.23 0.64 19.59 0.00 1.03 3.34 -14.30
Revolvers and pistols 0.01 0.00 0.00 0.03 0.00 0.00 -30.05
Firearms and similar devices which operate by the firing of an explosive charge 0.19 0.11 0.26 0.06 0.07 0.12 -8.41
Spring, air or gas guns and pistols, truncheons, and other non-firearms 0.03 0.00 0.14 1.49 0.32 0.45 70.40
Parts and accessories for weapons 37.53 37.22 61.81 74.97 74.12 73.24 14.31
Bombs, grenades, torpedoes, mines, missiles, cartridges and other ammunition and projectiles 11.96 80.81 15.32 15.90 29.21 33.47 22.85
Swords, cutlasses, bayonets, lances and similar arms and parts thereof, and scabbards and sheaths 4.90 5.76 6.15 6.58 6.20 5.20 1.18
Total 4943.91 2571.29 1093.13 316.48 202.18 165.98 -49.28
Source: DGCIS, Exim Bank Research

Investment climate in India for defence production has improved considerably in the recent years. FDI of 100 percent is allowed in defence through Government route andupto 74 percent is allowed under the automatic route. Between April 2000-March 2020, the defence industry attracted FDI worth US$ 9.52 million.

India’s current requirements of defence are catered largely by imports. The opening of the defence sector for private sector participation will help foreign original equipment manufacturers to enter into strategic partnerships with Indian companies and leverage the domestic markets, as well as aim at global markets. Besides helping in building domestic capabilities, this will also bolster exports in the long term. The Government has set to achieve a turnover of ₹ 1,70,000 Crores (US$ 26 bn approx.) in defence goods and services by 2025 involving additional investment of nearly ₹ 70,000 Crores (US$ 10 bn approx.) creating employment for nearly 2 to 3 Million people. In addition to this, defence goods and services exports are expected to target touch ₹ 35,000 Crores (US$ 5 bn approx.) by 2025.

The defence offset policy has been objectivized to leverage capital acquisitions to develop the domestic defence industry. Mandatory offset requirements of a minimum of 30 percent for procurement of defence equipment have been envisaged. This would ensure that an eco-system of suppliers is built domestically. Favorable government policy shallpromote self-reliance, indigenization, technology upgradation,achieve economies of scale andalso develop capabilities for exports in the defence sector. The country’s extensive modernization plans with an increased focus on homeland security will help to develop India as a defence sourcing hub. The outlook for the industry is positive in the medium term.



  • Open General Export License (OGEL) - OGEL is a one- time export license, which permits the industry to export specified items to specified destinations, enumerated in the OGEL, without seeking export authorisation during the validity of the OGEL.
  • Scheme for Promotion of Defence Exports – The scheme has been launched to provide prospective exporters an option to get their product certified by the Govt. and provides access to the testing infrastructure of Ministry of Defence for initial validation of the product and its subsequent field trials. The certificate shall be produced by the prospective exporter for marketing their products in the global market.
  • A Scheme to provide financial support to Defence Attaches for taking up actions for promoting exports of Indian-made defence products both of public and private sector in the countries to which they are attached has been notified.
  • Innovations for Defence Excellence (iDEX) - The scheme is formulated by Department of Defence Production in collaboration with Start Up India and Atal Innovation Mission, with the objective of bringing Start-ups to solve problems of defence production, innovate new technologies required by defence forces and reduce dependence on imported technology. The initiative will bring self-reliance and innovation in the defence and the aerospace sector.
  • Validity of Industrial License has been extended to 15 years with a provision of further 3 years of extension. The requirement of End User Certificate by Foreign Governments for export of parts/ components has been removed.
  • The Test facilities/infrastructure available with various Government agencies (OFB, DPSUs, DRDO, DGQA, DGAQA & SHQs) have been made available to private sector with the objective to assist them in design and development of defence systems.
  • Defence Investor Cell has been created in the Ministry to provide all necessary information including addressing queries related to investment opportunities, procedures and regulatory requirements for investment in the sector.
  • Offset guidelines have been made flexible by allowing change of Indian Offset Partners (IOPs) and offset components, even in signed contracts.



The Directorate of Defense Trade Controls (DDTC) is responsible for the export and temporary import of defense articles and services governed by 22 U.SC. 2778 of the Arms Export Control Act (AECA) and Executive Order 13637. The International Traffic in Arms Regulations ("ITAR," 22 CFR 120-130) implements the AECA. For further details, click Directorate of Defense Trade Controls

The government of UK has prescribed certain international trade regulations for the defence sector. The regulations, charges and restrictions on importing or exporting military goods and how to apply for the correct licenses can be found on Guidance: Aerospace and Defence Sector