Enterprising states can boost India’s military industrial complex

Andhra Pradesh has just come out with a revised aerospace and defence cluster policy (2025-30) that can become a role model and game changer for other states.

India’s domestic military industrial complex (MIC) has been making waves in recent times. India should in time expect a substantial decline in its arms imports and possibly emerge a recognised exporter as well. However, this defence industrialisation journey is largely through  defence PSUs and erstwhile ordnance factories. Private sector players remain disinterested.

The states, driving industrialisation efforts at sub-national level, did not nudge the private players towards expansion and consolidation of the domestic MIC. Nevertheless, Andhra Pradesh has just come out with a revised aerospace and defence cluster policy (2025-30) that can become a role model and game changer for other states.

Some promises in the revised policy are lofty and attractive. For instance, the state aims to attract investments ranging from Rs 50,000 crore to Rs 1 lakh crore in each of the five clusters. This is five to ten times more than the expected investments in the two defence industrial corridors (DICs) in Uttar Pradesh and Tamil Nadu.  It would also make concerted efforts to ‘identify’ the investors and reach out to them. The promise of technology transfer subsidy is a revolutionary step since non-transfer of technology remains a sore point in most arms imports deals.

Unfortunately, many lofty promises enshrined in the policy statement may perhaps remain ‘paper tigers’. For instance, a previous policy statement from Andhra Pradesh promised a cumulative investment of Rs 50,000 crore. That simply cannot materialise in India’s contemporary defence investment atmospherics.

Lack of investments, including the foreign direct investments (FDI,) is just a small part of the larger atmospherics that plague states’ efforts to collaborate with the Union Government efforts in defence industrialisation. To begin with, not all states are partners in the MIC game. Apart from Uttar Pradesh and Tamil Nadu, propelling their DICs, only seven more states have a declared aerospace and defence cluster policy. Most of these came after the Union Government started nudging the private players towards increased indigenous production through policy incentives. However, very few states have actually revised their policy statements to retain dynamism. Few are mere declarations where the actual ground-level activism remain visibly missing!

When it comes to defence industrialisation and public policy formulations, many state governments get the plot quite wrong. Defence being a Union subject, the states have a formal sense of aloofness. Some states, who were the beneficiaries of the ordnance factories in earlier decades, failed to develop industrial clusters around them to supply ancillary materials and spare parts. Even the present policy statements, often announced by state governments with huge fanfare, are often based on one-sided inputs.

While the Union Government policy initiatives are macro statements, state governments are supposed to provide municipal support and rule of law. Yet, defence start-ups in any state face different kinds of problems that are ubiquitous across the spectrum – licensing, finance, technical know-how, easy access to labour and finance, etc. There are multiple bureaucratic procedures and bottlenecks and the so-called ‘single window’ is often not of much help. In other words, the production business still suffers from overt bureaucratisation.

The states also have a different perception of technology and industrialisation. Advanced industrial states have better cognitive mapping of defence manufacturing as a potential sector of industrial development and growth. They have readymade physical and human infrastructure capable of supporting the defence industry. On the other hand, some states suffer from the vicious politics that prevails over developmental efforts. Such states remain engaged with caste politics, language politics, subsidy politics or politics of sub-regionalism. It becomes difficult to develop a culture of defence production in such atmospherics.

Couple of these states simply do not have any defence ecosystem worth name. Bihar and Chhattisgarh, for example, do not have any significant defence ecosystem that would inspire the defence manufacturing start-ups to take off. Perhaps that explains why the Nalanda ordnance factory in Bihar remains a stillborn child!

India has always been a big market for defence goods, in particular, weapons. Recent achievements in defence production and exports notwithstanding, there is a huge untapped potential for the growth of the domestic MIC.

The state governments, which have largely shied away from the defence production business, can become important stakeholders and supplement the Union Government’s initiative in many ways.

First, the ubiquitous refrain in contemporary public policy approach to industrial development and growth is ‘more market, less state’. Unfortunately, this does not work in the defence sector where there is a perceptible ‘knowledge gap’. For example, many defence start-ups and even big corporate entities find difficulties in accessing international market due to cultural and procedural hurdles. The states, acting as ‘entrepreneurial state’, can plug such loopholes through effective intervention and facilitation.

Second, instead of competing with each other, the states can work on product specialisation and complement each other. While some states can encourage ‘low technology and labour intensive’ defence products (like small arms), some can focus on defence maintenance, repair and overhaul (MRO). Some states can encourage licensed privatisation and proliferation of production business and reduce the burden of defence PSUs within their territories.

Third, the states can coordinate amongst themselves to bring about uniformity of rules, regulations, subsidies, tax-breaks and other incentives so that the collectivity helps in the evolution of a clear investment and production picture. At present, the overall picture is diverse and hazy.

India is yet to break into the top 25 list of arms exporters, published annually by the Stockholm International Peace Research Institute (SIPRI). Countries like Iran, UAE, Jordan, Brazil and South Africa figure in the list. India has full potential to enter the list and figure a notch above these countries. For that to happen, we need spirited, entrepreneurial states willing to take the defence manufacturing seriously and create wealth. Andhra Pradesh is just one example; we need most states to join the defence manufacturing bandwagon. Probably, therein lies the gateway to a quick entry in the SIPRI list of arms exporters.

(Note: The author is in the Indian Defence Accounts Service. Views are personal and do not represent the stand of this publication.)