Rapidly Evolving Defense Startups Reshaping National Defense

🔍Insights

Nitin Konde, Apoorva Bajj

Mar 7, 2024 — 4 min read

Rapidly Evolving Defense Startups Reshaping National Defense

India hopes to enhance its defense exports and decrease its dependence on foreign suppliers by implementing Make In India. The global defense market is worth $2.1 trillion. In 2022, India spent around $76.6 billion, or 2.4% of its GDP, on its military, putting it third in the world behind China and the United States. This represents 3.7% of worldwide military spending. Startups in the Indian defense sector are anticipated to get increased funding and focus as the industry keeps expanding in the country.

Being in the vanguard of technological innovation, the defense sector is always adapting to meet the problems of contemporary security and combat. Firms that are at the forefront of innovation and technological growth are crucial in propelling revolutionary changes. Examples of such pioneering firms are DRDO, Bharat Electronics Limited, and Tata Advanced Systems Limited (TASL), which is a division of Tata Group. These companies are changing the face of defense technology, from new airplanes to cutting-edge weaponry, thanks to their insatiable need for innovation.

Consistent with this ever-changing environment, India is utilizing the Make in India drive to greatly improve its offensive and defensive capabilities. The main goal is to increase defense exports and decrease dependence on defense equipment and technology imports to gain a portion of the $2.1 trillion global defense industry. With the help of tax breaks and other government programs, the Make in India initiative encourages large corporations, new businesses, and small and medium-sized enterprises to manufacture defense equipment in India. These initiatives are complemented by the Indian government's Innovation for Defense Excellence (IDEX) program, which was established to encourage innovation and provide assistance to startups operating within the defense industry.

Startups: What Are the Possible Benefits?
Make In India
iDEX

Startups: What Are the Possible Benefits?

Big private enterprises in India are in the news all the time. Airbus Defense & Space (DS), a subsidiary of Airbus, and Tata Advanced Systems, a company that designs and produces aerospace, defense, and security goods, recently worked together to produce and build the C-295 medium-lift transport plane. The largest development since the private sector became involved in India's defense industry is the deal for INR 21,935 Cr ($2.67 Bn) that involves the production of 40 fly-away C-295 aircraft and the provision of MRO (maintenance, repair, and operations) services for 56 aircraft.

Guns and mounted vehicles make up the bulk of Bharat Forge's order book, which surpasses INR 2,000 Cr ($240 Mn). Mahindra Defense Systems is presently fulfilling two orders from the Indian government: one for light combat vehicles valued at INR 1,056 Cr ($129 Mn) and another for an integrated anti-submarine warfare defense suite valued at INR 1,350 Cr ($165 Mn) from the navy.

Size of the Military Aircraft and Aerospace Manufacturing Market Worldwide From 2018 to 2021

Make In India

The government's procurement process gives preference to indigenous products, and the Make in India initiative has established a hospitable environment for domestic manufacturers, opening up new markets for entrepreneurs and increasing domestic military production from 54% in 2019 to 75% by 2024.

From 2022 to 2030, the government will indigenise 411 weapons, platforms, and systems that were previously outlawed. Imports of some types of aircraft, including transport, basic trainer, and light combat planes, as well as certain missiles, destroyers, artillery cannons, and naval utility helicopters, are prohibited.

The government has also made public three lists of 3,738 components that DPSUs import annually for a total of INR 39,000 Cr ($4.75 Bn). In the next years, these components will be indigenized to a large extent, with the private sector set to get 25%.

iDEX

The Indian government, cognizant of the limitations of conventional domestic defense contractors, launched a groundbreaking initiative in 2018 known as iDEX, or Innovations for Defense Excellence, as part of the Make in India project. Over the next five years (from 2021-22 to 2025-26) the plan would distribute funding to about 300 startups, micro, small, and medium enterprises (MSMEs), individual innovators, and 20 partner incubators, with a total of INR 500 Cr ($60 Mn) in the budget. To aid fledgling defense companies, the initiative has launched several projects and schemes, such as:

The Defense Innovation Startup Challenge (DISC) is an initiative in India designed to find and back innovators and companies developing game-changing defense technology. The Defense Minister of India introduced the ninth iteration of the DISC initiative in February 2023. The program's 28 problem statements center on cybersecurity. Notable Indian investors have pledged around INR 200 Cr to the iDEX Investor Hub, which he has also inaugurated.

The funding and management of iDEX are overseen by a "Defense Innovation Organisation (DIO)" that was established as a "not-for-profit" business in compliance with Section 8 of the Companies Act 2013. Its original intent was to encourage creative problem-solving and technological advancement within the defense industry.

Startups and inventors can get funding from the Technology Development Fund (TDF) to help them build defensive technologies. The Defense Minister gave the green light in June 2022 to increase the funding for each project under the MoD's TDF plan from INR 10 Cr to INR 50 Cr.

Going Forward

By taking advantage of these programs, several Indian defense startups were able to rapidly expand their operations, improve their products and services, and secure contracts with the Indian military.

In 2020, 44 out of 194 defense technology businesses in India that were part of the Startup India mission were active participants in the iDEX project, according to a research report published in the media. With the help of iDEX awards totaling over INR 200 Cr, the number of defense startups has increased to over 300.