The Lift Line
Having opened the door to private firms, the state must now make sure they do not die in the valley between a working prototype and a production order.
Why This Editorial Matters for Your Exam
Defence indigenisation is a fixture of GS3, and most answers list the reforms (FDI, positive lists, iDEX, corridors). This op-ed by Amitabh Kant, former CEO of NITI Aayog and former G20 Sherpa, moves the argument on: with permission largely granted, the constraint is now capital and cash flow. It also flags the draft Defence Acquisition Procedure (DAP) 2026. It follows our earlier coverage of the DAC’s Rs 1.1 lakh crore approvals and the September editorial on the transfer of DRDO’s missile technologies.
GS Paper 3: Indigenisation of technology and developing new technology; security challenges and their management; investment models; Make in India.
| Concept | Meaning | Why it is testable |
|---|---|---|
| Nomination to competition | From orders reserved for public sector units to open competition among firms | The structural shift the author describes |
| Valley of death | The gap between a successful prototype and commercial-scale production | Where start-ups fail for lack of finance |
| Working-capital cycle | Time between spending on inputs and being paid for the output | 12 to 24 months in defence, per the author |
| Life-cycle (tail) cost | Spares, overhauls, upgrades and software over a platform’s life | Why imports create long dependence |
Background and Context
The policy shift, in the author’s account.
| Step | What happened |
|---|---|
| Defence Acquisition Council, 7 September 2026 | Cleared acquisition proposals worth about Rs 1.1 lakh crore for the three services; nearly 98 per cent by value to be sourced from Indian industry |
| Missile technology transfer (August 2026) | Ministry of Defence approved transfer of DRDO-developed technology for the entire conventional missile portfolio to Indian industry |
| End of de facto reservation | Public sector monopolies such as HAL, BDL and Munitions India Limited now face a more level field for private firms |
Production and exports, as the author reports them.
| Indicator | Figure |
|---|---|
| Defence production, FY26 | Rs 1.78 lakh crore |
| Defence production, FY14 | Rs 43,746 crore |
| Defence exports | Rs 38,424 crore, up 62.66 per cent in a year |
| Export destinations | More than 80 countries |
| Private industry’s contribution | About Rs 42,000 crore |
These match the Ministry of Defence’s figures of June 2026: production of Rs 1.78 lakh crore in 2025-26, up 15.6 per cent on a revised Rs 1.54 lakh crore in 2024-25, with the private sector’s share at about 24 per cent.
What Indian industry is making, per the author. An AK-203 “Sher” rifle built by Indo-Russian Rifles entirely from Indian components (test-fired in August); L&T in missile systems and naval engineering; Bharat Forge and Tata Advanced Systems on the Advanced Towed Artillery Gun System (ATAGS); Solar Industries’ Nagastra, described as India’s first indigenous man-portable loitering munition; and start-up Raphe mPhibr in drones and propulsion.
The Analysis
1. The strategic logic. India inherited a defence model built for an era when advantage came from scale and long platform development cycles. Recent conflicts have changed the economics: loitering munitions costing lakhs can neutralise platforms costing crores, and software-defined sensing, electronic warfare and assisted targeting shape outcomes. The differentiator is speed: how fast systems are developed, tested, adapted and redeployed.
2. The next frontier is autonomy. The author cites a US Navy unmanned surface vessel, built by a four-year-old start-up, that rescued two downed aviators off Oman in June, and China’s dominance of the humanoid-robot supply chain and reported PLA use of unmanned ground vehicles. India needs such systems for border management, high-altitude warfare and maritime combat, which requires depth in electronics, semiconductors, precision manufacturing, AI and robotics. Private participation has become “essential”.
3. Global precedent. Rheinmetall grew out of industrial and automotive components; Palantir and Anduril went from venture-backed start-ups to core US defence suppliers. The author sees similar patterns in L&T, Mahindra Defence Systems, Tata Advanced Systems and Adani, and in Indian start-ups.
4. Why localise. Supply chains can turn hostile, allies have their own wars (the Ukraine war has stretched Russian production, and a supplier at war rations exports), and the real cost of an import is the 30-year tail of spares, overhauls, upgrades and proprietary software, which creates dependence and strains the current account. Localisation also enables exports and soft power.
5. The binding constraint is now capital. Working-capital cycles run 12 to 24 months, which start-ups feel most. The author proposes four fixes:
- Payments: advance and milestone-based payments against a defined procurement mandate (“Government can kill enterprises by delaying payments”).
- Credit: a dedicated working-capital credit guarantee scheme for defence companies.
- Tax: a framework that recognises the sector’s high R&D intensity and low volumes.
- R&D share: a fixed share of defence R&D spending for smaller firms, with innovators retaining intellectual property and development contracts bundled with production orders.
He adds that the draft DAP 2026 recommends a standalone iDEX and TDF chapter, a minimum pilot order once a prototype clears trials, and a five-year assured order for successful projects, and calls implementing it “critical”.
The precision that earns marks. Separate the policy reforms (FDI 74 per cent automatic, positive indigenisation lists, DAP 2020, iDEX, OFB corporatisation) from the financing constraints (working capital, payment delays, valley of death). Most answers stop at the first list; the author’s point is the second.
Data and Institutions Vault
Prelims-grade facts:
In this op-ed:
- DAC on 7 September 2026: proposals worth about Rs 1.1 lakh crore, nearly 98 per cent from Indian industry.
- Defence production in 2025-26: a record Rs 1.78 lakh crore (Ministry of Defence), against Rs 43,746 crore in 2013-14.
- Defence exports: Rs 38,424 crore, up 62.66 per cent in a year, to over 80 countries.
- iDEX has engaged 676 start-ups, MSMEs and innovators and signed 551 contracts, per the author.
Institutions and policy:
- The Defence Acquisition Council is chaired by the Defence Minister and approves capital acquisitions.
- Defence Acquisition Procedure 2020 came into effect on 1 October 2020; Buy (Indian-IDDM) is its top-priority category.
- iDEX (Innovations for Defence Excellence) was launched in April 2018; it is run by the Defence Innovation Organisation, set up by HAL and BEL.
- The Technology Development Fund (TDF) is a Ministry of Defence scheme executed by DRDO to fund industry, especially MSMEs and start-ups.
- FDI in defence: up to 74 per cent under the automatic route; beyond that through the government route.
- The Ordnance Factory Board was dissolved and its units corporatised into seven defence PSUs on 1 October 2021, including Munitions India Limited.
- Defence Industrial Corridors are in Uttar Pradesh and Tamil Nadu.
- The AK-203 is made at Korwa, Amethi, by Indo-Russian Rifles Private Limited, an India-Russia joint venture.
Prelims, the traps:
- iDEX is run by the Defence Innovation Organisation (HAL and BEL), not directly by DRDO; TDF is executed by DRDO.
- IDDM means Indigenously Designed, Developed and Manufactured.
- FDI above 74 per cent in defence is allowed, but only through the government route.
⚠️ Watch the trap: Defence production (Rs 1.78 lakh crore in 2025-26) and defence exports (Rs 38,424 crore) are different figures; exports are a part of production, not an addition to it.
The Debate
Open the field further. Competition has already raised output and exports; private firms and start-ups bring speed in drones, autonomy and electronics that the new battlefield demands. Financial fixes are the logical next step.
Keep the public sector strong. Defence PSUs and former ordnance factories provide assured capacity, surge production and accountability that private firms, answerable to shareholders, may not. Opening the field should not simply shift a public monopoly to a few private conglomerates.
The balanced verdict. The aim is a mixed and competitive base in which public and private firms compete on performance, start-ups can reach scale, and the state pays on time. The author’s financing agenda serves that aim.
How to Think About This
Once permission is granted, look for the next constraint. Reforms often remove a legal barrier and then stall on money, time or process. In any sector opened to private players (defence, space, nuclear power, mining), ask what now limits entry: capital, payment cycles, testing infrastructure, or assured demand. An answer that identifies the next binding constraint shows the examiner you understand how reforms actually play out.
Diagram-in-Words
Takeaway Box
- From nomination to competition: DAC approvals of about Rs 1.1 lakh crore (98 per cent Indian) and transfer of DRDO’s missile technologies to industry.
- Results: production a record Rs 1.78 lakh crore in 2025-26; exports Rs 38,424 crore to 80+ countries.
- New warfare: cheap drones and loitering munitions reward speed of development over scale.
- New constraint: capital, with 12 to 24 month working-capital cycles and delayed payments.
- Fixes: milestone payments, a defence credit guarantee, R&D-friendly tax, reserved R&D for small firms, and the draft DAP 2026’s assured orders.
Sources: Hindustan Times, PIB
Source: From Nomination to Competition: Why India's Private Defence Makers Now Need Capital, Not Just Permission — Ujiyari.com | Free UPSC & State PCS Editorial Analysis
