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Indigenous innovation, targeted incentives and high-tech collaboration must shape the nation’s defence sector in an era of heightened global uncertainty.
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Defence today cannot be viewed in isolation, given its intense interplay with aerospace and communication. This was evident in the recent flare-up in India-Pakistan ties, which also clearly demonstrated the changes that have occurred since the last major conflict nearly 26 years ago.
India’s technological prowess has since evolved and gained global recognition. During the recent skirmish, India successfully leveraged its resilient technology to its advantage.
Traditional weapons of mass destruction (WMD) may soon become a cliché, as conflicts are increasingly witnessing the applications of diverse military technologies and their allied products. The fact also remains that for most developing countries, strengthening their defence systems is crucial to shield against foes, rather than striking without rhyme or reason.
The latest SIPRI data reflects heightened global uncertainty. The global aggregate military expenditure reached US$2,718 billion in 2024, representing an increase of 9.4 percent in real terms from 2023, and the steepest year-on-year rise since the end of the Cold War. The top five military spenders are the United States, China, Russia, Germany and India, cumulatively accounting for 60 percent of the global total, with a combined spending of US$1,635 billion.
The global aggregate military expenditure reached US$2,718 billion in 2024, representing an increase of 9.4 percent in real terms from 2023, and the steepest year-on-year rise since the end of the Cold War.
Over 100 countries increased their military spending in 2024, with all members of the North Atlantic Treaty Organisation (NATO) having done so. US military spending saw an increase of 5.7 percent to reach US$997 billion, accounting for 66 percent of total NATO spending and 37 percent of global military spending. Notably, Japan’s military expenditure rose by 21 percent to US$55.3 billion, the largest annual increase since 1952.
As the world’s fifth-largest military spender, with expenditure rising by 1.6 percent to US$86.1 billion in 2024, India is increasingly looking to share its defence expertise with like-minded developing economies.
India has invested significantly in technology-enabled defence and aerospace systems to counter potential adversaries. The recent conflict with Pakistan highlighted the country’s readiness for modern, technology-driven warfare. However, there remains substantial scope for innovation, particularly as non-kinetic warfare becomes the new norm.
Recently, NATO agreed upon the new NATO Science and Technology (S&T) Strategy, which has been framed “to enable the Alliance to outperform strategic competitors and potential adversaries in inserting scientific knowledge and adopting emerging technologies across all NATO core tasks”. India would benefit from developing a comparable framework suited to its strategic context.
Technology will serve as a fulcrum for defence, aerospace, and communication systems moving forward. This convergence presents India with the opportunity to incorporate certain structural advancements.
First, the Production Linked Incentive (PLI) Scheme should be expanded to cover a broader range of dual-use technologies. Currently focused primarily on drones, the scheme could be extended to encompass the full drone spectrum, reflecting their growing utility across sectors.
The government should also consider including other segments under the PLI umbrella, such as airborne early warning (AEW) systems, surveillance equipment, jamming devices, radar systems, sensors, and robotics. Doing so would promote domestic manufacturing, reduce import dependency, and strengthen the indigenous defence ecosystem.
A suitably designed industry-academia linkage in this process would add further teeth to such an initiative.
Secondly, given that technology remains a broad domain, the evolving scenario demands a focused pedagogy aligned with cutting-edge technologies, which is required in building defence, aerospace, communication, and allied equipment. A suitably designed industry-academia linkage in this process would add further teeth to such an initiative.
Promoting the Science, Technology, Engineering, and Mathematics (STEM) fields would help advance research into these sectors. Research and development across various incubation centres in advanced study institutions must be supported by the government.
Thirdly, enhancing the appeal of the new defence industrial corridors by establishing an ecosystem that attracts businesses both from India and abroad is essential. There is a huge opportunity for these corridors to invite companies, especially start-ups that are at the forefront of technology, and thereby create incremental development and growth therein.
Currently, India has two such corridors, one in Uttar Pradesh and another in Tamil Nadu. However, the former has not attracted as much investment as the latter. The reasons for this disparity need to be thoroughly analysed and addressed, which may include fostering a cosmopolitan work environment to draw quality technical talent from across the country and abroad.
Fourthly, India must invest in manufacturing capabilities to achieve defence exports of INR 500 billion by 2029. Defence exports surged to a record high of INR 23,622 crore during 2024–25, reflecting a growth of 12.04 percent over 2023–24, with the private sector contributing 57.15 percent. Given India’s latent potential, it must look beyond traditional defence products and seek to export systems employing dual-use technology, thereby providing cost-effective, robust, and adaptable solutions that can serve both national security needs and civilian applications. This can be further facilitated through enhanced public–private partnerships, which could lead to opportunities for technology transfer, innovation, and industrial growth.
Amid ongoing efforts to modernise its defence sector, India has been actively working towards self-reliance by developing indigenous advanced technologies and complex systems.
India’s defence production rose by nearly 15 percent in FY 2025 over the previous year, reaching INR 1.46 trillion from INR 1.27 trillion. Since FY 2015, the growth has been an impressive 174 percent. Notably, 65 percent of defence equipment is now manufactured domestically, as the country pursues the goal of Atmanirbharta (self-reliance).
Recognising the strategic importance of technology in defence, the government launched the Innovations for Defence Excellence (iDEX) initiative in April 2018. As of February 2025, iDEX has generated 549 problem statements and engaged 619 startups and MSMEs, resulting in the signing of 430 contracts.
Defence exports from major economies have typically been supported by their respective Export Credit Agencies (ECAs), albeit with certain limitations.
Additionally, the Self-Reliant Initiatives through Joint Action (SRIJAN) platform enables Indian defence companies to identify imported components and systems, helping them explore opportunities for domestic manufacturing.
India is now aiming not only to meet domestic defence needs but also to become a significant exporter. This ambition requires sustained and adequate financial support. Globally, defence exports from major economies have typically been supported by their respective Export Credit Agencies (ECAs), albeit with certain limitations. For instance, the US Export-Import Bank (US EXIM), UK Export Finance (UKEF), Export Finance Australia (EFA), and the Export-Import Bank of Korea (Korea EXIM) have all played active roles in backing their national defence industries. India may consider establishing a similar mechanism to support its export ambitions.
Going forward, it is imperative for India to build and sustain an ecosystem that fosters the development of next-generation defence technologies aligned with industry requirements, while advancing the broader objective of national self-reliance and security.
Rahul Mazumdar is an economist with the Export-Import Bank of India.
The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.
Rahul has been associated with India EXIM Bank since 2007. He has been working on issues related to international economics public policy and sustainability: and ...
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