Indigenization & Modernisation of Defence Sector

UPSC Mains PYQ

Defence Indigenization (2023): "Self-reliance in defense manufacturing is a strategic imperative for India." Analyze the policy measures (like Positive Indigenization Lists, Defence Acquisition Procedure) implemented to reduce import dependence. Discuss the challenges faced by private defense manufacturers in competing with Public Sector Undertakings (DPSUs). (15 Marks, 250 Words)

📊 High-Yield Data & Statistical Fact Sheet

Key Indigenization Targets & Milestones:
- Domestic Capital Reservation: 75% of the defense capital procurement budget reserved for domestic industries.
- Defence Exports: Reached an all-time high of ₹24,000+ Crore in FY25 (major items: BrahMos, Tejas LCA, Pinaka rocket launchers, artillery).
- Positive Indigenization Lists (PIL): Over 5,000+ items (weapons systems, sub-systems, components) banned for import progressively.
- Ordnance Factory Corporatization: Restructured 41 historic ordnance factories into 7 corporate DPSUs (e.g., Munitions India Ltd) in 2021.
- FDI Limit: Up to 74% under automatic route and 100% via government approval (for modern technology).
- Defence Industrial Corridors: 2 corridors established in Uttar Pradesh (6 nodes) and Tamil Nadu (5 nodes).

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1. DEFENCE ACQUISITION & POLICY REGIME

Defence Acquisition Procedure (DAP) 2020:
- Prioritizes Buy (Indian-IDDM) (Indigenously Designed, Developed and Manufactured) as the highest category for procurement.
- Mandates a minimum of 50% Indigenous Content (IC) for IDDM category.
Strategic Partnership (SP) Model: Private Indian firms partner with global OEMs to manufacture major platforms (e.g., submarines, fighter jets, armored vehicles) in India.
Make-I and Make-II Categories:
- Make-I: Government-funded (up to 90%) prototype development.
- Make-II: Industry-funded prototype development with guaranteed procurement if successful.
Defense Offsets: Mandates foreign vendors to reinvest 30% or more of contract value in India's domestic defense sector for deals exceeding ₹2,000 Crore (though offset execution has faced compliance challenges).

Indigenous Platforms:
- Aviation: LCA Tejas (Light Combat Aircraft), LCH Prachand (Light Combat Helicopter).
- Naval: INS Vikrant (Aircraft Carrier), Arihant-class nuclear submarines.
- Missiles: BrahMos (supersonic cruise missile), Astra (Beyond Visual Range air-to-air), Agni-V (ICBM).
IDEX (Innovations for Defence Excellence): Funding and handholding platform for startups, MSMEs, and individual innovators to develop dual-use technologies.
Ordnance Factory Restructuring: Dissolved the 200-year-old Ordnance Factory Board (OFB) to create 7 specialized DPSUs, improving corporate efficiency, accountability, and quality control.

R&D Underfunding: India’s defense R&D spending remains low (~6% of defense budget) compared to global leaders (US/China ~12%).
Asymmetric Playing Field: DPSUs receive preferential treatment in nomination-based contracts, creating hurdles for private defense manufacturers.
Testing & Certification Bottlenecks: Lack of accessible, state-of-the-art testing ranges for private industries to test and validate prototypes.
High Import Dependency for Core Components: Sub-systems, semiconductors, engines (e.g., Kaveri engine for Tejas), and critical raw materials are still imported.

Top Priority Procurement Category: Buy (Indian-IDDM).
FDI Cap (Automatic): 74%.
Domestic Capital Reservation: 75%.
Ordnance Corporatization: 41 factories converted into 7 DPSUs.
Defence Corridors: Uttar Pradesh and Tamil Nadu.
Strategic Partnership Model Target: Private Indian firm + Foreign OEM collaboration.
Export Champion: BrahMos Supersonic Missile.

Notes updated up to March 2026. Sources: Ministry of Defence Annual Report, PIB Releases.