By Mr. Sahil Luthra

India is gradually increasing its defense production capabilities, focusing on reducing imports and increasing exports. MSMEs are playing an important role in this process, contributing to the development of indigenously developed defense solutions.

The private sector has also seen remarkable growth, with its share of defense production reaching 22 percent in FY24, the highest in nearly a decade. According to the Observer Research Foundation, India aims to achieve $25 billion in defense production and $5 billion in exports by 2025. A key part of this strategy is to empower small businesses and help them develop innovative, innovative defense solutions.

Advantage of MSME in Defence

Small businesses bring flexibility, fresh ideas, and problem-solving skills to the table. Today, about 8,000 MSMEs are active in India’s defense sector, and the goal is to double that number. The government has earmarked Rs 1,500 crore from its domestic procurement budget specifically for startups and MSMEs, highlighting their importance in the bigger picture.

However, this is beyond financial aid. MSMEs are being integrated into larger defense projects through outreach programmes, creating opportunities for collaboration and development. But challenges remain—delayed payments and limited access to credit are obstacles these businesses must overcome to thrive.

Innovation and Technology

Technology is changing the face of defense manufacturing, and MSMEs are at the forefront of this transformation. Steps like Innovation for defensive expertise (iDEX) and Technical Development Fund Encouraging young players to think creatively. From AI-powered systems to 3D printed components, MSMEs are helping to define what is possible in defense production.

Adoption of digital simulations and advanced manufacturing techniques has also allowed these businesses to produce equipment that meets global standards. With the right combination of innovation and government support, MSMEs are becoming an indispensable part of India’s defense ecosystem.

Big opportunities ahead

India’s defense industry is poised for substantial growth. According to Nomura’s report, there are $138 billion in defense contract opportunities between FY24 and FY32. Sectors such as aerospace and shipbuilding stand out as growth sectors, where investment is expected to reach $50 billion and $38 billion, respectively.

Exports are also on the rise, reaching a record $29 billion in FY24. This shows India’s potential not only as a self-reliant country but also as a global exporter of high-quality defense equipment.

Defense corridors, new growth engines

The two defense corridors in Uttar Pradesh and Tamil Nadu are turning into hubs of innovation and manufacturing. With an investment of $4.5 billion already, these corridors are fostering partnerships between MSMEs and large defense players, creating an ecosystem where new ideas thrive.

For example, the Tamil Nadu corridor is focused on high-tech components, while the Uttar Pradesh corridor is developing critical defense systems. These regional hubs are not only building defense capabilities but also creating employment opportunities and boosting the local economy.

Government policies

Government policies are providing the much-needed push for local manufacturing. The Defense Acquisition Mechanism (DAP) 2020 gives preference to Indian companies, in particular Make in India Category Easy licensing and soft FDI norms have further encouraged private players and MSMEs to venture into defense manufacturing.

Challenges and solutions

While progress is encouraging, there is room for improvement. MSMEs still face problems such as inconsistent payment schedules and high costs of adopting new technologies. Addressing these barriers requires targeted efforts, such as dedicated funds for MSMEs and simplified regulations to facilitate their operations.

Capacity building programs coupled with improved infrastructure can help small businesses compete globally.

Atmanirbhar India’s vision of India in defense is not just a government initiative – it is a collective effort involving businesses, innovators and policymakers. By addressing the challenges faced by MSMEs and supporting their capabilities, India is on the verge of becoming a global leader in defense manufacturing.

This journey is more than just numbers. It is about creating a system where every player, big or small, contributes to the country’s security and self-reliance. As MSMEs continue to integrate into the development and defense supply chains, their role will continue to be critical in making India’s vision of self-reliance a reality.

(The author is Mr. Sahil Luthra, Founder & MD, Vijayan Trishul Defense Solutions Pvt. Ltd., and the views expressed in this article are his own)