On 5 June, when the Narendra Modi government retained power for a third consecutive term, shares of defence companies heaved a sigh of relief. Despite the initial scare caused by the decrease in BJP’s parliamentary majority, it soon became evident that the central government will continue with its encouragement of defence manufacturing in the country.
As a result, the Nifty India Defence index rose from 6217.69 to 7099.41 within the next seven trading sessions. Now, with the new government set to present its first budget next week, there is consensus among experts that the defence push will continue as earlier. It is also expected that the budgetary allocation will have to be increased to keep up with the sector's demands.
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“Enhancing self-reliance in defence, strengthening economic ties with multiple nations, and investing in technological and military capabilities are crucial steps that need financial backing. These measures will ensure that India remains ‘strategically autonomous’ and resilient in an increasingly multipolar world,” Rajinder Bhatia, president of Society for Indian Defence Manufacturers (SIDM), writes for Outlook Business.
According to a Nomura report from earlier this year, India’s defence production space presents an ordering opportunity worth $138 billion over an eight-year period starting FY24.
“Policies that focus on enhancing domestic value addition through indigenisation efforts at the parts, components, and sub-assembly levels are crucial. The development of key raw materials and embedded software should be a priority, supported by incentives for private investment in greenfield infrastructure and testing facilities,” adds Bhatia of SIDM.
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Out of the $138 billion opportunity, Nomura earmarked $50 billion worth orders to take place in the defence aerospace segment. Venkatesh Mudragalla, co-founder of Jeh Aerospace, points out the need for specific policies to encourage aerospace manufacturing as well, which lies adjacent to defence production.
“The Aerospace and Defence (A&D) industry holds immense potential, and with supportive policies, India can become a global hub for A&D manufacturing,” says Mudragalla.
R&D Holds the Key
As India is keen on improving domestic manufacturing capacity and cutting down its reliance on imports, it has become increasingly important for defence companies to increase its expenditure on research and development. For example, Bharat Electronics increased its R&D spend from Rs 548.9 crore in FY15 to Rs 1088 crore in FY23.
“Innovation and R&D are the key to self-reliance in defence production, exports and strategic autonomy. An increase of just about Rs 540 crore for the DRDO (Defence Research and Development Organisation) in the interim budget for FY ’25 was grossly inadequate,” notes Amit Cowshish, who served in the Indian Defence Accounts Service for thirty-five years.
“Increased funding for R&D is crucial for advancing cutting-edge technologies such as electric and hybrid aircraft, advanced propulsion systems, and autonomous flight systems. By enhancing funding for space exploration missions, satellite technology, and deep-space research, I believe we can maintain leadership in space activities,” says C. Prabhakar, director of Gopalan Enterprises.
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