INTRODUCTION
Back in 2016, when a Bengaluru-based startup delivered its first batch of SWITCH UAVs to the Indian Army, few imagined that an Indian startup could compete with global defense giants that we were used to importing from. India's defense sector has emerged as one of the most promising segments of the Indian economy since the launch of the 'Aatmanirbhar Bharat' and 'Make in India' initiatives. With defense production hitting ₹ 1.27 lakh crores in FY 23-24, exports hitting ₹ 23,622 crores in FY 24-25 (up by 34x in a decade!), India has gone from buying security to building it.1 The private sector has played a significant role in this growth, contributing about 64% (sixty four percent) of the total exports.2
How did we get here and what is keeping the momentum going? The answer lies in the policies and laws quietly reshaping India's defense sector, promoting indigenous defense manufacturing, reducing dependency on imports and betting on net exports in the sector. In the pages ahead, we dive deeper into the legal framework driving this growth, the openings it creates, and the regulatory hurdles that still stand in the way of true selfreliance.
KEY LAWS AND REGULATORY FRAMEWORK GOVERNING DEFENSE MANUFACTURING AND PROCUREMENT
1. Ministry of Defence ("MoD") – The Command Structure
Running on a budget of ₹ 6.81 lakh crores in FY 2025–26, the MoD is the primary institution responsible for overseeing the defense sector. It is not just another ministry; it is the nerve center of India's defense ecosystem. The MoD provides policy direction on defense procurement, research, and development, manufacturing and related matters through three operational departments: 3
- Department of Defence: 4 Manages defence budget, lands, cantonments, policy, parliamentary matters, international defence cooperation, and coordination of all defence activities. Headed by the Defence Secretary, supported by the Directorate General (Acquisition), Additional and Joint Secretaries.
- Department of Defence Production: 5 Led by the Defence Production Secretary, focuses on self-reliance in design, development, and production of defence equipment and systems, indigenisation of imports, and oversight of Defence Public Sector Undertakings ("DPSUs").
- Department of Defence Research and Development: 6 Headed by the Secretary (Defence R&D) and Defence Research & Development Organisation ("DRDO") Chairman, responsible for research and development ("R&D") of defence technologies, systems, and equipment for the Armed Forces.
2. Industrial License
Remember when only government entities could produce defense equipment? Those days are long gone. By way of Press Note 4 of 2001, the defense sector was opened up to 100% (one hundred percent) for private sector participation.7
Defence manufacturing requires a license under the Industries (Development & Regulation) Act, 1951 ("IDRA"), from the Department for Promotion of Industry and Internal Trade ("DPIIT").8 For years, it was unclear which defense items would fall within this license regime. Broad headings for compulsory licensing included "tanks and other armored fighting vehicles"; "defense aircraft, space craft and parts thereof"; "warships – all kinds"; "arms and ammunition and allied items of defense equipment; parts and accessories thereof" - without providing any details or explanation on the equipment and items covered.
Subsequently, by Press Note 3 of 2014 ("PN3 of 2014"), 9 erstwhile Department of Industrial Policy & Promotion (now DPIIT), addressed this by providing a consolidated list of items requiring licensing. PN3 of 2014 also clarified that: (i) items not included in the list would not require an industrial license for defense purposes; and (ii) items having military as well as civilian applications, other than those specifically mentioned in the list, would also not require an industrial license.
In 2016, the government notified the Arms Rules, 2016 (under the Arms Act, 1959), which added ambiguity around the licensing process. Rule 52 of the Arms Rules, 2016 states that the "licensing authority (Ministry of Home Affairs) may grant a license.....for the following types of arms for manufacture or proof test or both, namely:-....(iii) items configured for military use..." thus raising apprehension that the Arms Rules had shifted the licensing regime from the simpler and faster DPIIT process to the Ministry of Home Affairs ("MHA").
However, on May 19, 2017 ("2017 MHA Notification"), the MHA passed on the power to issue licenses in respect of the arms and ammunition and defense items under the Arms Rules, 2016 to the DPIIT (then DIPP). 10 It was still unclear whether the manufacture of defense items which are common under both PN3 of 2014 and 2017 MHA Notification would be governed by the IDRA or the Arms Act, 1959. The ambiguity was finally resolved by way of a notification by the MHA on December 14, 2018, which clarified that the Arms Act, 1959 would cover only tanks, armored vehicles, and arms/ammunition and allied items of defence equipment, while aircraft, spacecraft, and warships continued to be covered within the ambit of the IDRA.
In order to resolve this ambiguity, the MHA issued a notification on December 14, 2018 in supersession of the 2017 MHA Notification which limited the purview of the Arms Act to "tanks and other armored fighting vehicles" and "arms and ammunitions and allied items of defense equipment". Accordingly, manufacture of "defense aircraft, spacecraft and parts thereof" and "warships of all kinds" were not within the scope of the Arms Act but the IDRA.11 This was further clarified vide Press Note 1 of 2019, 12 which clearly sets out the defense items requiring licenses under the IDRA and the Arms Act. DPIIT now remains the single licensing authority for both the groups of items.
3. Security Manual for Licensed Defence Industries
Security is not just a concern, it is the foundation of defence manufacturing. Licensed defense producers must adhere to the guidelines specified in the Security Manual for Licensed Defence Industries, issued by the Department of Defence Production ("Security Manual").13 Think of it as the industry's essential rulebook, establishing minimum security standards that every manufacturer must implement. The implementation of the Security Manual is undertaken by various agencies in collaboration such as the Intelligence Bureau, Ministry of Home Affairs and Department of Defence Production.
Key requirements under the Security Manual include:
- implementation of prescribed minimum security standards for production and sale of defense items;
- regular security audits by intelligence agencies;
- annual cybersecurity audits by CERT-In empaneled auditors;
- stringent measures to ensure sensitive technologies are not disclosed to unauthorized parties;
- annual and quarterly reporting obligations to Intelligence Bureau, Ministry of Home Affairs, Department of Defence Production; and
- appointment of compliance officers such as Chief Security Officer, Cyber Information Security Officer for undertaking compliance and liaison with governmental authorities as set out in the Security Manual.
These security protocols are crucial for protecting sensitive defense technologies and ensuring that manufacturing activities align with national security interests.
4. Defence Acquisition Procedure, 2020 ("DAP 2020")14
If you want to sell to India's armed forces, DAP 2020 is your bible. This document governs all capital procurements, replacing the earlier Defence Procurement Procedure. It is a statement of intent, designed to prioritize indigenous design/content and manufacturing.
The procurement categories are as follows:
- Buy (Indian-Indigenously Designed, Developed and Manufactured) - For products designed and developed in India;
- Buy & Make (Indian) - For products to be initially purchased from Indian vendors followed by indigenous production.
- Make-I/Make-II - Government or industry-funded design projects respectively
DAP 2020 was updated in 2023 to raise indigenous-content requirements, fast-track approvals for Startups/Micro, Small and Medium Enterprises ("MSMEs"), and simplify procedures. The aim was for these categories to create a preference cascade, with Indian-designed products getting priority.
MoD declared 2025 as the 'Year of Reforms', 15 initiating a comprehensive review of the DAP 2020 to ensure modernization of the armed forces and boosting self-reliance and make in India initiatives.16 Industry insiders expect these changes to address long-standing issues of procedural delays and complex approval processes.
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Footnotes
1. "Make in India Powers Defence Growth; Exports at ₹23,622 crore in FY 2024-25, while production hit ₹1.27 lakh crore in FY 2023-24", Press Information Bureau, March 29, 2025 (Press Release: Press Information Bureau).
2. ibid
3. "From Indigenous Production to Global Exports, Redefining National Security" June 10, 2025 (Press Release: Press Information Bureau).
4. About The Department | Department Of Defence.
5. About us | Department of Defence Production.
7. Press Note No. 4 of 2001 - Revision of existing sectoral guidelines and equity cap on Foreign Direct Investment (FDI), including investment by Non Resident Indians (NRIs) and Overseas Corporate Bodies (OCBs) (Government of India, Minstry of Commerce & Industry, Department of Industrial Policy & Promotion).
8. Sr. No. 37 of Schedule I of IDRA, read with Notification No. S.O.477(E) dated July 25, 1991 as amended by Notification No. S.O.11(E) dated January 3, 2002 of the (then) (Department of Industrial Policy and Promotion, Ministry of Commerce and Industry).
9. Press Note No. 3 of 2014 – List of defense items requiring industrial license, (Government of India, Ministry of Commerce & Industry Department of Industrial Policy & Promotion).
10. Notification No. S.O. 1636(E) – dated May 19, 2017, (Ministry of Home Affairs).
11 , Notification S.O. 6203(E) – dated December 14, 2018, (Ministry of Home Affairs) .
12, Press Note No. 1 of 2019 – List of defense items requiring industrial license, (Government of India, Ministry of Commerce & Industry Department of Industrial Policy & Promotion).
13. Security Manual for Licensed Defence Industries, June 2014, (Ministry of Defence, Department of Defence Production).
14. Ministry of Home Affairs, Notification S.O. 6203(E) – December 14, 2018, (Ministry of Home Affairs).
15. "Ministry of Defence declares 2025 as 'Year of Reforms'", , MoD, January 01, 2025 (Press Release: Press Information Bureau).
16. Rahul Singh, "Defence ministry sets up panel to review acquisition procedure", Hindustan Times, June 20, 2025 (Hindustan Times).
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