Earlier this week, on Tuesday, 1st February, our Union Finance Minister, Nirmala Sitharaman, announced in her budget speech that 25% of the total R&D budget of the defense ministry would be allocated to the Indian private industry, academia, and startups to push the defense manufacturing within India.
In addition, 68% of the capital procurement budget is allocated for the domestic industry in FY 2022. The move aims to boost domestic manufacturing of defense equipment and reduce our country’s reliance on imports. It is worth noting that the number stood at 63% in the Union Budget 2020-21 and 58% in 2019-20 (1).
“Our government is committed to reducing defense imports and promoting Atma Nirbharta in Armed Forces equipment. 68% of the capital procurement fund will be allocated for the domestic industry in 2022-23,” stated Sitharaman.
She added that the government would also set up an independent nodal umbrella to meet defense equipment’s wide-ranging testing and certification needs.
“Defense R&D will be set up for Indian industry startups and academia with 25% of the defense R&D budget. Officials will encourage the private industry to take up design and development of military platforms and equipment in collaboration with DRDO and other organizations via strategic partnership model,” stated Sitharam.
Some more facts about our Defense Space:
- We have the second-largest armed forces worldwide
- Ongoing DRDO projects in our country are worth more than 7.3 billion USD
- SRIJAN is a platform that promotes indigenization, and so far, we have indigenized over 1,776 components and spares
India is Aiming At Self Reliance and Increasing Its Exports Over Defense Imports
Welcoming the announcement, SP Shukla, the President of SIDM (2), The Society of Indian Defense Manufacturing, a body of over 527 member companies, said,
“It will sustain investments and attract new capacity building. Creating a nodal body to set up testing and certification needs of defense systems and platforms will help the domestic industry via faster processes and cost-efficiency. The 25% allocation of the Defense R&D budget to the private industry was also a much-needed reform. We thank the Defense and Finance Ministry for this major boost.”
Ever since BJP started to lead the nation, we have made tremendous progress in our defense forces. And over the past few years, India has been looking to enhance its self-reliance on defense, increase its exports, and reduce imports in this space.
The numbers are also looking positive since India has made leaps in its defense exports from 1,940.64 crore INR in FY 2014 to 8,434.84 crore INR, according to the Defense Ministry, in December 2021.
Our country has also set a target of exporting defense equipment worth over 35k crore INR, about 5 billion USD, by 2025 (3). The new policy aims at enhancing exports and building a domestic defense industry and looks to achieve a turnover of 1,75,000 crore INR, about 25 billion USD. Moreover, the new policy aims to double its domestic procurement from the Indian industry.
The Defense Minister has also released a list of 2,851 items to promote self-reliance and reduce its imports to put in an import embargo list to save over 3k crore INR annually (4).
All of these points out tremendous opportunities for startups and private players in the Indian defense market.
Indigenization of Defense Hardware
Since India imports more than 70%, in terms of value, of its high-tech defense hardware, including missiles, aircraft, ships, submarines, etc., from foreign countries like Russia, the United States, Japan, and Israel, it is pushing for greater indigenization of its military hardware (5).
Compared to other military branches, our Indian Army, while consuming over 50% of the defense budget, is still the least technology-intensive and has been slow to adopt the indigenization of equipment (6). However, our army has asked DRDO, the Indian Defense Research & Development Organization, to take more army staff to become part of its (DRDO) technology development project teams over the past few years (7).
Today, our forces are using several successful indigenous technologies made by DRDO (8), it includes:
- TAL, Advanced Light Torpedo, Shyena
- Electronic Warfare Technologies
- Composite Materials for LCA
- LCA Tejas
- Nag Missile
- Arjun MBT Mk 1A
- 46m Modular Bridge
- LLTR Aswin
India As Arms Exporter
India had a modest track record as an arms exporter because of the export restrictions on our manufacturing organizations like OFB, Ordnance Factory Board (9, 10). It exports arms and ammunition, chemicals and explosives, weapon spares, leather, other clothing items, and parachutes to over 30 countries globally, including Thailand, Philippines, Malaysia, Indonesia, Germany, Sri Lanka, Belgium, Egypt, Oman, Israel, Chile, USA, Suriname, Botswana, Kenya, Nigeria, Bangladesh (11).
Thanks to liberal policies our honorable Prime Minister Narendra Modi’s government has adopted since 2014, there has been a tremendous increase in our defense exports. Today, Hindustan Aeronautics Limited, OFB, and Bharat Electronics Limited, three of our country’s companies, are recognized as the world’s top 100 defense companies by the SIPRI, Stockholm International Peace Research Institute. It is also worth highlighting that these companies account for over 1.2% of the defense exports of the top-100 total (12).
New Delhi decided to sell the Barracuda, its first indigenously designed and manufactured multi-role OPV, offshore patrol vessel, to Mauritius in March 2011. In March 2017, India and Myanmar signed an agreement for 37.9 million USD to sell indigenously designed lightweight torpedoes. Our country also sold Sri Lanka and Vietnam similar naval units (13, 14, 15).
OFB received its largest export contract from the UAE in September 2017 to supply 40,000 155 mm artillery shells for 43 million USD (16). In August 2019, OFB secured a second order from the UAE for 50,000 artillery shells (17).
In 2021, India’s Defense Minister, Rajnath Singh, stated that India was ready to export a variety of missile systems, helicopters, multi-purpose light transport aircraft, warships, patrol vessels, tanks, artillery gun systems, radars, electronic warfare systems, military vehicles, and other weapons systems to countries in the Indian Ocean region (18).
Indian Defense Organizations
India has several state-run and private organizations, including:
- Bharat Dynamics (Ammunition and Missiles)
- Bharat Electronics (Radar and Avionics)
- Bharat Earth Moves (Transport)
- Goa Shipyard (Shipbuilding)
- Hindustan Aeronautics Limited (Aerospace and Defense Manufacturers)
- Mishra Dhatu Nigam (Metallurgy)
- Bharat Forge
- Reliance Naval Shipyard
- Kalyani Group
- Larsen & Toubro
- Tata Defense Systems
- Tonbo Imaging
- SSS Defense
- Mahindra Defense
Where Can Indian Startups Thrive in Defense Innovation?
India has more than 194 defense tech startups working on innovative tech solutions to support its defense efforts.
For instance, Torus Robotics, a Chennai-based startup, is helping the Indian armed forces with modular UGVs, Unmanned Ground Vehicles for diverse mission needs.
Their UGVs are equipped with 6DOF, six degrees of freedom, and a robotic arm for detection and disposal of life-menacing unidentified objects. We see similar opportunities in air mobility vehicles focusing on the air force’s needs, like autonomously carrying resupplying field artillery units.
Imaging and Scanning
EyeROV is a Kochi-based startup that enables underwater inspection with marine robotic solutions. Apart from defense, it also solves problems for several other industries like infrastructure, oil and gas, shipping, and ocean research organizations.
The company is also developing an ROV, remotely operated vehicle, an underwater drone, to inspect offshore assets. It solves several issues with human divers like depth limits, hostile environment, poor visibility, high water currents, etc.
There are opportunities for satellite and other imagery companies, Go Platform, for example, to automate imagery analysis for defense analysts. Such solutions can also be useful for investors and agriculture businesses.
Another example is Optimized Electrotech, an Ahmedabad-based startup that offers security and surveillance solutions. It offers an electro-optics system for the surveillance of cities, railways, borders, access control, machine vision for the army, IAF, navy, and other commercial purposes.
There is plenty of room for building indigenous drones or UAVs for our forces equipped with surveillance and defense gear.
For instance, a Mumbai-based startup, ideaForge, offers solutions to defense, industrial applications, and homeland security. It offers fixed-wing VTOL UAVs designed for high altitude and harsh environments for day and night surveillance, intelligence, and ISR missions.
Businesses can develop drone systems that are hard to detect, identify, and deter. We will need robust encryption solutions that conceal communication between the operator and the vehicle, cellular or satellite (19).
Besides drones, we also see plenty of opportunities in counter-drone systems for their early detection.
Cybersecurity and Cyber Attacks
Startups can create robust solutions to detect any threat that overcomes our existing defense systems, hypersonic glide missiles, for example, (20), prevent our missiles from being detected, increase cyber security to ensure our missiles stay on track, and offer an early warning.
Startups can also build advanced radar systems that empower our defense forces to detect and track several targets rapidly and even at longer ranges. There is also an opportunity to ensure that our hardware can operate even under hostile electronic environments.
Besides high-tech hardware and software, food technology is another major enabler for military operations (21). It ensures that our troops are fit to fight.
Since fresh foods spoil within days, there are tremendous opportunities to develop new food preserving technologies. These solutions can also help India with its space goals, especially with the upcoming human-crewed missions like Gaganyaan of ISRO.
Besides food preservation, startups can work in flexible packing to reduce weight and waste (like degradable food pouches over metal cans). The key focus is to offer our armies palatable, nutritious meals that help them combat the ill effects of harsh terrain and weather. We may need different products and packages for our tank, submarine, and air force crews.
We also see plenty of opportunities in areas like:
- Defense acquisition, implementation, program, and industrial licensing advisory
- Assistance with FDI
- Niche platforms for market research, collaboration, and other strategies
- Defense innovation hubs
- Tax optimization and transactions focused on players in the defense industry
- Supply chain management, Logitech for defense space
- Intellectual property and technology transformation
As we mentioned, the defense industry is one of the largest markets worldwide. And it is also emerging as one of the hottest sectors for startups and investments in India.
Also, our governments offer plenty of schemes and initiatives to our founders and innovators (22).
Reportedly, a startup can land over a 3 million USD contract within months of entering this market (23). After all, we need to keep pace with our enemy no 1, China, who is furiously integrating commercial new-age technologies like AI, ML, quantum computing in its armed forces (24).
India needs a broad pool of founders and innovators to compete with its far more technologically advanced counterparts truly. While we are working to materialize a strong defense ecosystem, it will take years of grueling efforts to make it successful.
We have strong reasons to believe that startups offering solutions to the defense and commercial industry will win big. Of course, there is always a conflict potential; as we have seen with Google withdrawing from Project Maven (25), we argue that such tension is less for startups. Nonetheless, businesses can avoid it by being mindful of their reputational and other impacts.
Of course, there are several hurdles like lengthy defense acquisition processes in this space. Most startups’ business models don’t fit well with longer timelines, and also, it is not appropriate because of fast-paced technological obsolescence. Hence, we hope to see our government devising and enforcing a shorter timeline commensurate with our startups.
However, any startup that makes it through these challenges can find a massive market with consumers eager for better tech solutions. Our government will pay its bills on time; short-term volatility doesn’t affect the defense budget, and there are chances of getting multi-year contracts.
All in all, companies entering our defense space (of course, after careful consideration of challenges!) can access tremendous opportunities in the years ahead.