Post Operation Sindoor, private sector may see big push for defence manufacturing

Specific measures on the anvil include plans to compress procurement schedules to around two years from an average of about six years currently for big orders, as was done for the Rafale Marine aircraft procured by the Navy, a top government official told The Indian Express.

A model involving research and development (R&D) by public sector undertakings (PSUs), sometimes jointly with the private sector players, and the production then being entrusted to the private company, as was done for DRDO-designed 5.56x45mm CQB Carbine that is now being manufactured by Bharat Forge after a tender process, is likely to be replicated for more equipment. In case of drones, the idea is to shortlist up to five manufacturers of civilian drones that have the capacity to expand to military-grade ones, and offer them government support for technology tie-ups and order book guidance.

While the private sector defence manufacturing companies were asked to step up their production during the escalation in hostilities between India and Pakistan in May following the Pahalgam terror attack, with many responding by a three-shift production operation, the renewed push is now being made to boost domestic defence production and fully “harness the power of industry”, the official said.

“The government has clearly stated its intent of not being restrictive in its spending powers for defence. We have to harness the power of industry, whether it is PSUs, private sector companies or startups. They have to leverage the buying power of the government. And, this should trigger private investment to ensure a diversified industrial ecosystem, especially for small arms manufacturing. The private sector, including the MSMEs, need to step up to fully make use of the situation, defence manufacturing can’t be confined to just the public sector,” the official said. The focus would also be on export of items where India has “good capacity”, including high-demand items such as 155mm shells due to the ongoing conflict in Europe.

Defence procurement norms revision

The government is also working towards revising the Defence Acquisition Procedure (DAP) 2020 to streamline the defence procurement process. A compression of the documentation manual, co-development with the Defence Research and Development Organisation (DRDO), and a competitive bidding procurement procedure through tenders and not nominations are going to be the key focus areas for the proposed DAP 2025 that is likely to be ready in about eight months. Efforts are underway to make DAP 2025 less voluminous and more practical, especially the broader objective of fostering private participation in India’s defence sector.

In case of drones, three to five manufacturers have some capacity to expand from civilian drones to military-grade ones. Given that this market is a monopsony — the government as the only buyer — the plan is to use its buying power to give visibility in terms of orders to that manufacturing ecosystem. There is also a renewed focus on a consortium approach, involving PSUs and private companies. A model could involve R&D by PSUs such as DRDO, sometimes in partnership with the private sector players, and the production then being left to the private company. The intent is to encourage these layers through orders and give them some visibility into the future orders so that they start investing in this area, including tying up with the technologies from abroad. “We will try to ensure this by speeding up procurement and by giving them visibility in terms of orders,” an official said.

The DRDO-designed 5.56x45mm CQB Carbine, now being manufactured by Bharat Forge, after being selected as the lowest bidder in the Army’s procurement tender for over 4.23 lakh carbine units, is a case in point. This carbine, developed by the Armament Research and Development Establishment and Bharat Forge, is a close-quarter battle weapon intended for urban warfare and counter-insurgency operations.

Compressing field evaluation trials is already something that is work-in-progress, the official said. The acquisition of the Rafale Marine aircraft, which was done in about 24 months as against the typical time frame of 5-6 years for a big order, is serving as a key example for reduced procurement timeline. The Inter-Governmental Agreement between India and France of the contract for India’s acquisition of 26 Rafale Marine to equip the Indian Navy was signed in April 2025. This contract followed the announcement in July 2023 of the selection of the Rafale Marine, for which the Indian Navy will be the first user outside France, after an international consultation process.

Defence expenditure push

While there may not be an immediate need for revision of the record defence budget, officials said there could be a slight increase in spending over and above the allocated amount in the Budget for 2025-26. “We are well on track for defence spending in the first quarter. Larger procurements anyway take time, the contracts are of around 5 years duration, but rest of the spending is on track. Till the end of June, around 17-18 per cent of the defence modernisation budget has been spent. There might be a slight upward revision, we’ll see when we reach that stage,” the official said.

According to the latest data by the Controller General of Accounts, the Ministry of Defence had spent 14 per cent or Rs 24,730 crore till May-end out of its total budgeted capital expenditure Rs 1.8 lakh crore for FY26. The Ministry had spent just 4 per cent of its budgeted amount in the corresponding period of the previous financial year.

Emergency procurement is also likely to account for about 15 per cent of the overall allocation this year, much of that initiated during Operation Sindoor. That, combined with the stepped up pace of current expenditure, officials expect the allocation to be fully protected at the revised estimate stage and if there are additional requirements, the Ministry of Finance has assured the Ministry of Defence that on capex, there would be no constraint on the Rs 1.8 lakh crore spend.