By: Ajay Kumar, Ph.D.
Date: April, 2025
India’s defence industry ecosystem is buzzing with optimism. Stocks of defence companies are soaring with record price-to-earnings ratios. Venture funds and angel investors are vigorously hunting for defence startups. Market analysts are ramping up their defence teams. Foreign OEMs, who once dictated terms, are now knocking on the doors of Indian partners to participate in “Make in India.”
For the first time, India is not merely a defence importer but also a defence exporter. Exports have grown dramatically—from INR 14 billion in 2016–17 to INR 250 billion this year, a 15-fold increase. While the growth is from a small base, the potential for greater impact is clearly visible.
But the scenario was very different just a few years ago. When I joined the Ministry of Defence in 2017-18, the industry was not insignificant—valued at INR 750 billion—with Indian Defence PSUs ranked among SIPRI’s top 100. However, most of India’s defence production relied on assembly using Transfer of Technology (ToT) agreements.
ToTs are notoriously one-sided. They often exclude the “know-why” (core understanding) and only provide “know-how” (basic operational instructions). Critical components and subsystems are typically excluded, ensuring long-term dependence on the seller. Additionally, restrictions on production quantity, upgrades, exports, and perpetual royalties meant that even domestically built equipment often ended up being more expensive than imports.
Interestingly, while India was reluctant to involve its own private sector in defence due to the sensitivity of the industry, it had no hesitation in importing from private foreign companies. Public Sector Units operated on a cost-plus basis with little incentive to innovate or scale, even in dual-use technologies such as AI, drones, and aerospace.
The desire to be self-reliant, or Atmanirbhar, in defence is not new. It has been the stated goal of the Ministry of Defence for decades. A new Department of Defence Production was created in 1962, and private industry entry was allowed in 2001. But real transformation came with Prime Minister Modi’s call for Atmanirbharta in Defence, backed by strong political will.
Major reforms included:
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Launch of iDEX (Innovation for Defence Excellence) in 2018
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Delicensing and ease-of-doing-business reforms
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Positive indigenization lists from 2020
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Capital procurement budgets earmarked for domestic and private industry
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Corporatization of the Ordnance Factory Board in 2021
Of all these, iDEX has had the biggest impact. Military technology is complex, capital-intensive, and slow to develop. Until iDEX, only large players like Tatas and L&T could afford to participate.
The government took a bold step by launching iDEX and inviting startups to solve military problems. Skeptics were proved wrong. In 2019, a top U.S. defence lab expressed interest in collaborating with an Indian startup. That same year, a year-old Indian startup sold drones to the Indian Army’s Northern Command. Another startup created a 100-megapixel camera and proposed a 1-gigapixel version—surpassing global benchmarks. A third produced a 1000-drone swarm show for Republic Day, at a fraction of the foreign vendor’s cost.
Most of these challenges were solved within 12 to 18 months, with government support of under INR 15 million (~$160K). Today, that support goes up to INR 100 million for iDEX Prime and INR 250 million for iDEX Aditi challenges. Startups often bring in matching or greater funding.
iDEX’s success stories have become industry folklore. Over 2,000 defence and 300 space startups are driving deep-tech innovation. In emerging tech like AI, quantum, and drones, Indian startups are producing top-tier solutions. QNu Labs, for instance, achieved record distances in Quantum Key Distribution, outperforming global competitors.
This innovation has energized the broader defence ecosystem. Major companies began R&D without waiting for funding. PSUs, once seen as assembly units, filed over 2,000 patents. Mazagon Docks engineers designed India’s first midget submarine prototype.
Scalability is another iDEX advantage. Defence equipment contains thousands of components. Earlier, only a few could be tackled at a time. With iDEX, hundreds of challenges can be addressed simultaneously. iDEX also fostered unprecedented collaboration among the armed forces, DRDO, PSUs, and other departments—working together as equals, not in silos.
iDEX’s impact reached beyond defence—railways, space, and other sectors now look to replicate its innovation model.
But perhaps the biggest breakthrough is this: for the first time, India has become a destination for product innovation—not just services or manufacturing. This could mark the beginning of “Make in India 2.0,” and play a pivotal role in achieving India’s goal of becoming a developed nation.
The next big leap is going global. Indian startups need to scale like Anduril, Skydio, SpaceX, or Palantir. India’s story today mirrors Israel’s in the 1990s, where IDF’s Unit 8200 spurred innovation. In India, the Ministry of Defence is playing that role.
The U.S. is the ideal launchpad. The India-U.S. Comprehensive Global and Strategic Partnership offers unmatched opportunities. Initiatives like COMPACT, the US-India Major Defence Partnership, ASIA (Autonomous Systems Industry Alliance), and TRUST reaffirm these ties.
Several iDEX startups are already exploring global opportunities.
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3rdiTech signed a Cooperative Research and Development Agreement (CRADA) with the U.S. Space Force and Air Force Research Lab.
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New Space and Research Technologies (NRT) signed a CRADA and is in further discussions.
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Astrome, in wireless broadband, has already entered the U.S. market.
Each of these startups is seeking their inflection point—transformational moments that will define their future.
With strategic support and the right partnerships, India can build an Indo-U.S. Startup Bridge that enables startups to scale internationally, positioning India as a global innovation leader.
Biography: Dr. Ajay Kumar, former Defense Secretary of India (2019–2022), played a pivotal role in defense modernization, aerospace procurement, and industry reforms, including the corporatization of the Ordnance Factories Board. He was architect of iDEX and contributed to reforms in India’s geospatial and drone policies. Earlier, he was instrumental in Digital India, shaping Aadhaar, UPI, and Government e-Marketplace. A Distinguished Visiting Professor at IIT Kanpur and Senior Fellow at Carnegie India, he mentors startups and writes “Off the Grid” for Business Standard. He is also Founder-Chairman of Mounttech Growth Fund-Kavachh a VC fund supporting startups in defense, space and deep-tech. He holds a PhD from the University of Minnesota and a B.Tech from IIT Kanpur.