India’s Defense Revolution: The Untold Story of Military Modernization

India’s defence sector is undergoing a transformation that defies conventional wisdom. While global attention focuses on procurement announcements and military exercises, the real story lies in fundamental shifts happening beneath the surface—changes that could redefine India’s position in the global defence landscape.

The Paradox of Power: Low Spending, High Ambitions

India stands as the world’s fifth-largest defence spender, yet few realise that defence expenditure as a share of GDP sits at just 2.27%—near a 65-year low. This contradiction reveals something significant about India’s current military posture.

Historically, India’s defence spending has spiked sharply after periods of conflict: following 1962, 1988, 2000, and 2020. The current low baseline, combined with persistent geopolitical tensions, suggests we’re at an inflexion point. Goldman Sachs projects that defence capital outlay could surge nearly 6.5 times by FY47E, indicating that today’s modest spending represents not the new normal, but the calm before a substantial buildup.

While capital outlay has generally trended upward over the past 25 years with only brief downturns, the proportion of national resources dedicated to defence tells a different story—one of strategic restraint that may soon give way to necessary expansion.

From Buyer to Builder: The Indigenisation Acceleration

India has long carried the label of the world’s second-largest defence importer, but this designation increasingly belongs to the past. The numbers reveal a dramatic reversal: foreign procurement by the armed forces has plummeted from 62% of total spending in FY02 to merely 12% by 9MFY25.

This isn’t just about the “Make in India” initiative gaining traction—it represents a fundamental rewiring of procurement priorities. However, the journey toward self-reliance remains incomplete. Critical capability gaps persist, particularly in high-technology components for the Navy and Air Force. Aero-engines, advanced electronic warfare suites, and sophisticated radar electronics remain heavily import-dependent.

The next phase of indigenisation focuses not on volume but on mastery—acquiring the capability to produce the high-margin, complex systems that define modern military power. It’s the difference between assembling and innovating.

The Foundation Matters: Materials Over Platforms

Perhaps the most underappreciated aspect of India’s defence transformation is occurring at the base of what analysts call the “technology pyramid.” This pyramid has four levels: Platforms & Equipment (aircraft, ships) at the top, followed by Systems & Products (engines, radars), then Components, and finally Processed Materials at the foundation.

India has demonstrated competence at the pyramid’s apex, manufacturing its own tanks and aircraft. Yet significant vulnerabilities remain at the bottom—in aero components, ammunition, radar electronics, and critically, in processed materials like titanium and superalloys, which India currently imports.

This represents more than a supply chain issue. The shift from assembly to material science will determine whether India remains a technology consumer or emerges as a technology creator. Mastering these foundational elements unlocks not just self-sufficiency but the ability to innovate at every level above.

The New Guard: Private Sector vs. Public Sector Dynamics

A crucial question for the defence sector’s future is whether established Defence Public Sector Undertakings (DPSUs) or emerging private players will drive growth and innovation.

DPSUs hold distinct advantages: entrenched positions, substantial order books, and government advance payments that translate to superior cash flows and lower execution risk. However, these strengths typically correlate with modest earnings growth—stability over dynamism.

Private defence companies present a contrasting profile. They’re investing aggressively, shouldering higher working capital requirements and execution uncertainty as they scale capabilities. Yet these firms are carving out niches in advanced technologies and specialised products, integrating into global supply chains, and targeting high-margin, intellectual property-driven segments.

This divergence creates a strategic choice: short-term cash-flow stability with DPSUs, or long-term earnings growth potential with agile private players positioning themselves for tomorrow’s defence needs.

The Digital Battlefield: Silicon Outweighs Steel

The character of modern warfare is shifting decisively toward digital and electronic domains. Tomorrow’s conflicts will hinge on cyber operations, autonomous systems, information dominance, artificial intelligence, and electronic warfare capabilities.

The Indian government’s Technology Perspective and Capability Roadmap (TPCR) acknowledges this reality, emphasising radar electronics, stealth technology, communication systems, and drone platforms. Forward-thinking private companies are responding with IP-driven strategies, developing reusable, platform-independent electronic “building blocks.”

This modular approach delivers significant advantages: the same fundamental modules can be deployed across diverse platforms—from missile systems to fighter jets—without requiring ground-up redesign each time. This dramatically reduces development time and costs across multiple defence programs.

The implication is clear: future value in India’s defence industry will correlate less with tonnage of steel produced and more with the sophistication of intellectual property embedded in its systems.

What This Means Going Forward

India’s defence narrative has evolved beyond procurement headlines into a comprehensive industrial transformation. This transformation is propelled by a budget trajectory that enables substantial investment, a strategic pivot toward material self-sufficiency, and the emergence of a new generation of private technology leaders.

The central question is whether India’s expanding private sector can innovate rapidly enough to narrow the gap with competitors like China. The answer will determine not just India’s military capabilities, but its position in the global defence industrial base.

As platforms give way to materials, and steel yields to silicon, India’s defence sector stands at a crossroads. The path chosen in the next few years will shape the nation’s strategic autonomy for decades to come.

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