SOURCE: AFI
India’s push for self-reliance in defence under the Atmanirbharta initiative has spotlighted the role of private sector companies in transforming the country into a global defence manufacturing hub. However, despite the government’s efforts to integrate firms like Tata Advanced Systems, Mahindra Defence, Larsen & Toubro, and Adani Defence into the defence ecosystem, these companies face significant constraints: shallow financial reserves, limited capacity for independent research and development (R&D), and a preference for acting as outsourcing partners for global giants like Boeing and Airbus.
Compounding these issues is a troubling trend of subcontracting critical defence components to smaller, less-regulated firms, exploiting supply chain loopholes. This practice not only undermines quality and reliability but also incurs recurring costs for reordering or restarting production, jeopardizing India’s long-term goal of building a robust, self-sufficient defence industry.
Unlike public sector undertakings (PSUs) like Hindustan Aeronautics Limited (HAL), which benefit from government backing and an annual defence budget of Rs 6.21 lakh crore (2024-25), Indian private sector companies lack the financial depth to fund capital-intensive defence projects. Developing advanced platforms like the 5.5-generation Advanced Medium Combat Aircraft (AMCA) or even subsystems like active electronically scanned array (AESA) radars requires billions of rupees in upfront investment, with returns often delayed by a decade or more. India’s R&D expenditure, at 0.64% of GDP, is dwarfed by global leaders like Israel (6.3%) and China (2.6%), and private sector contributions remain minimal, with the government funding 90% of defence R&D.
Private firms, constrained by thin profit margins and shareholder pressures, prioritize low-risk, high-return ventures over speculative R&D. For instance, Tata Advanced Systems’ Rs 21,935 crore deal to manufacture 56 C-295 transport aircraft for the Indian Air Force (IAF) relies heavily on Airbus’s design and technology, with Tata’s role centered on assembly and integration. Similarly, Mahindra’s partnership with Airbus for helicopter components and L&T’s collaboration with Boeing for F/A-18 structures focus on contract manufacturing rather than indigenous design. These companies leverage India’s low labor costs and skilled workforce to secure outsourcing deals, but their reluctance to reinvest profits into R&D stifles innovation, leaving India dependent on foreign intellectual property (IP).
The allure of being outsourcing partners for global aerospace giants like Boeing, Airbus, and Lockheed Martin is understandable. These contracts provide steady revenue, access to advanced manufacturing processes, and global supply chain integration. Tata, for example, produces aero-structures for Boeing’s 737 and 787 programs. Such partnerships have boosted India’s defence exports to Rs 21,083 crore in 2023-24 and created thousands of jobs. However, they also entrench a dependency model where Indian firms act as Tier-2 or Tier-3 suppliers, assembling kits or producing components designed abroad, a practice colloquially termed “screwdriver giri.”
This focus on outsourcing over innovation contrasts with countries like South Korea, where Korea Aerospace Industries (KAI) invested heavily in the KF-21 Boramae, securing export interest from the UAE. Indian private firms, by contrast, rarely lead platform development, preferring to bid for contracts under the Defence Acquisition Procedure (DAP) 2020’s “Buy (Indian)” or “Buy and Make” categories, which allow foreign technology transfers. The absence of indigenous IP development limits India’s ability to compete in global markets, where platforms like China’s J-35 or Turkey’s TF Kaan are gaining traction due to state-backed R&D and international partnerships.
A more insidious issue plaguing India’s private defence sector is the practice of subcontracting critical components to smaller, often unregulated firms, exploiting loopholes in supply chain oversight. Several companies awarded contracts to supply parts for India’s fighter jet programs, such as the Tejas Light Combat Aircraft (LCA) and Su-30 MKI, have been caught outsourcing these tasks to substandard vendors. These smaller firms, lacking the expertise or quality control of Tier-1 suppliers, deliver components that fail to meet stringent aerospace standards, leading to delays, rejections, or outright failures in operational use.
For instance, investigations by the Ministry of Defence (MoD) in 2023 revealed that certain private firms supplying avionics components for the Tejas outsourced production to small-scale manufacturers in Tier-II cities, bypassing quality certifications. These substandard parts, ranging from wiring harnesses to landing gear actuators, required costly rework or replacement, inflating project costs and delaying deliveries. The Tejas program, already behind schedule with HAL struggling to meet the IAF’s order of 83 Mk-1A jets by 2028, has been particularly affected, with supply chain disruptions contributing to the IAF’s squadron shortfall (31 against 42.5 authorized).
This outsourcing practice not only compromises quality but also incurs recurring costs. When components fail or are rejected, the MoD must restart production or reorder parts, often at a premium, as smaller vendors lack the capacity for consistent supply. A 2024 report by the Controller and Auditor General (CAG) flagged such inefficiencies, estimating that supply chain mismanagement in the Tejas program added Rs 2,000 crore in avoidable costs between 2018 and 2023. These issues undermine the DAP’s Indigenous Design, Development, and Manufacturing (IDDM) category, which mandates that products have at least 50% indigenous content and be designed in-house.
The private sector’s reluctance to innovate stems from systemic barriers beyond financial constraints. First, the defence procurement process is complex and slow, with tenders often mired in bureaucratic delays or favoritism toward PSUs. Private firms, unlike HAL, lack guaranteed contracts, discouraging long-term R&D investments. Second, the absence of a robust defence innovation ecosystem—comparable to Israel’s, where startups collaborate with giants like Rafael—limits private firms’ access to cutting-edge research. Initiatives like Innovations for Defence Excellence (iDEX) have awarded Rs 1,500 crore to startups since 2018, but most private players remain risk-averse, preferring established foreign partnerships.
Third, the MoD’s lax enforcement of supply chain regulations enables loopholes. While the DAP requires traceability and quality assurance, oversight is often inadequate, allowing firms to subcontract without scrutiny. This contrasts with global standards, where aerospace giants like Boeing enforce stringent supplier audits. Finally, the private sector’s profit-driven model clashes with the long gestation periods of defence R&D, where projects like the AMCA require 15-20 years to mature, deterring firms focused on quarterly returns.
The private sector’s limitations have far-reaching consequences for India’s defence ambitions. The AMCA, a flagship Atmanirbharta project with a Rs 15,000 crore budget for five prototypes, relies on private firms like Tata and L&T for subsystems like stealth coatings and landing gear. However, their focus on outsourcing and reluctance to invest in indigenous design could delay the program, already slated for induction in 2035. Similarly, the Indian Navy’s requirement for 114 Multi-Role Fighter Aircraft (MRFA) and the Army’s need for 1,000+ helicopters face hurdles if private suppliers prioritize foreign tie-ups over local innovation.
To address these challenges, India must adopt a multi-pronged strategy to transform its private defence sector:
- Incentivize R&D Investment: Offer tax breaks, grants, and assured contracts for firms developing indigenous IP, expanding iDEX’s Rs 1,500 crore model to include larger players. The MoD’s allocation of 25% of R&D funds to private entities must be enforced with clear milestones.
- Strengthen Supply Chain Oversight: Implement stricter audits and traceability protocols, as recommended by the CAG, to prevent unauthorized subcontracting. Blockchain-based supply chain tracking, piloted by DRDO, could ensure transparency.
- Foster Public-Private Synergy: Integrate private firms with HAL and DRDO in a cohesive R&D ecosystem, with HAL leading design and private players scaling production, as seen in the C-295 project.
- Encourage Selective Tie-Ups: Promote technology transfers from global giants like Boeing, but mandate co-development of critical subsystems, as in the Barak 8 missile with Israel, to build local expertise.
- Penalize Loopholes: Introduce penalties for false IDDM claims and subcontracting violations, ensuring compliance with DAP’s 50% indigenous content rule.
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