India Defence MSMEs Explained| The Eastern Strategist
New Delhi, 20 May: For years, India’s defence story was tied to imports.
Governments spoke about self-reliance, but the armed forces continued depending heavily on foreign suppliers for fighter aircraft, engines, surveillance systems and high-end electronics. Even relatively small components often came through overseas supply chains.
That is beginning to change, although unevenly.
A growing network of India defence MSMEs is slowly becoming more visible inside the country’s defence manufacturing ecosystem. Many of these firms remain unknown outside industry circles. Some build drone components. Others work on sensors, electronics, battlefield communications, ammunition parts or precision engineering systems.
Together, they are starting to occupy a larger role in India’s push for domestic manufacturing and defence exports.
The shift comes at a moment when New Delhi is trying to reduce long-term dependence on imported military equipment while also positioning itself as a defence supplier to parts of the Indo-Pacific, Africa and the Middle East.
India is still far from becoming a major defence-export power. But the direction of travel is clearer than it was a decade ago.
A Different Kind of Defence Industry
India’s defence sector was historically dominated by state-owned companies and a relatively closed procurement system. Private firms had limited access, especially smaller manufacturers without deep political or institutional links.
That structure has started loosening over the last several years.
Government-backed programmes such as DAP 2020, iDEX and the Technology Development Fund created more space for startups and MSMEs to participate in defence development projects.
The changes were gradual rather than dramatic. Payment delays and certification bottlenecks still exist. Procurement remains slow by private-sector standards.
But smaller firms now have more direct access to military requirements than they did earlier.
Industry estimates suggest several thousand India defence MSMEs are linked to the defence supply chain today, either directly or indirectly. Many operate in areas where modern warfare increasingly depends on adaptable and lower-cost systems rather than only heavy platforms.
That includes:
- drones,
- surveillance systems,
- communications equipment,
- electronic warfare components,
- sensors,
- optics,
- and software-linked battlefield technologies.
The Ukraine war accelerated global interest in many of these technologies. Militaries watched relatively cheap drones and loitering munitions produce battlefield effects that were once associated with far more expensive systems.
Indian firms noticed the same trend.
The Export Push
India’s defence exports have grown sharply over the last decade, even if the numbers remain modest compared to the world’s largest exporters.
Official data shows defence exports rising from around ₹686 crore in FY2013-14 to more than ₹23,000 crore in recent years.
Much of that growth has come from smaller systems and subsystems rather than major platforms.
Indian companies are increasingly exporting:
- drone systems,
- radar components,
- coastal surveillance equipment,
- ammunition,
- and electronic systems.
Some of the demand is coming from countries looking for lower-cost alternatives to Western suppliers. Others are trying to diversify procurement away from dependence on a single major power.
Indian firms see an opportunity there, particularly in Southeast Asia, Africa and parts of the Indian Ocean region.
Unlike China’s defence-export model, which is dominated by large state-owned companies, India’s ecosystem is more fragmented and private-sector driven. That creates limitations in scale, but it can also make Indian firms more flexible in smaller export markets.
Several countries are less interested in expensive flagship systems and more interested in affordable surveillance platforms, drones or border-security technologies that can be integrated gradually.
That is where smaller manufacturers and India defence MSMEs may find room to compete.
The MSME Layer
Most Indian defence MSMEs are not building tanks or fighter jets.
Their role sits deeper inside the industrial chain.
Some produce precision components for aerospace systems. Others work on embedded electronics, metal fabrication, battlefield software or unmanned systems. Increasingly, these firms are becoming part of a distributed supplier network feeding larger defence projects.
That matters because modern defence manufacturing depends heavily on subsystem integration.
Even large military platforms rely on hundreds of smaller suppliers producing specialised components. Countries that develop those industrial layers tend to build stronger long-term manufacturing ecosystems.
India is trying to move in that direction.
The government’s defence corridors in Uttar Pradesh and Tamil Nadu were designed partly around this logic — creating industrial clusters where suppliers, testing centres and manufacturers operate close to each other.
Whether those corridors fully achieve their goals remains uncertain. But they have helped expand investment and policy attention around domestic defence manufacturing.
Eastern India’s Potential Role
One part of the discussion that receives less attention is eastern India.
States such as Jharkhand, Odisha and West Bengal are unlikely to emerge as major defence-manufacturing centres overnight. But they could gradually become part of wider supply chains linked to engineering, fabrication and logistics support.
The region already possesses industrial infrastructure tied to steel, metals and heavy engineering. Labour and land costs also remain lower than in several western and southern industrial clusters.
As India expands freight corridors and maritime connectivity under its Act East policy, eastern logistics routes may become more relevant for industrial manufacturing, including defence-linked production.
Much depends on investment, infrastructure and state-level execution. Still, industry analysts increasingly see eastern India as a possible secondary manufacturing base rather than only a resource corridor.
That could matter over the next decade if India’s defence production expands at scale.
The Problems Have Not Gone Away
The optimism around India defence MSMEs sometimes runs ahead of reality.
Smaller firms continue to face financing constraints, delayed payments and procurement uncertainty. Defence contracts often involve long timelines, which can strain companies with limited working capital.
Certification remains another obstacle. Military-grade testing and quality approvals are expensive and time-consuming, especially for newer firms trying to scale.
India also remains dependent on imports in several critical technologies, including advanced engines, certain semiconductor-linked systems and high-end aerospace components.
Export capability is another weak point.
Building a defence product is one challenge. Maintaining overseas support networks, spare-part supply chains and after-sales servicing is another. Many Indian MSMEs still lack that depth.
The sector is growing, but it remains uneven.
A Strategic Shift, Slowly Taking Shape
Even so, something important is changing inside India’s defence ecosystem.
India defence MSMEs are no longer seen only as low-cost vendors attached to larger state-owned companies. Increasingly, they are being viewed as part of the industrial base required for long-term defence manufacturing and export capacity.
That shift carries strategic implications.
Countries that build domestic defence industries gain more than production capacity. They build technical skills, supplier networks, research ecosystems and export relationships that often last for decades.
India is still at an early stage compared to established defence-export powers. But the effort to expand its manufacturing base is now broader than it was in the past, and smaller private firms are becoming more central to that process.
Some of these companies will struggle. A few may eventually become globally competitive.
Either way, India’s defence ambitions are increasingly tied to what happens beyond the large public-sector manufacturers that dominated the industry for decades.
