India’s Defence Startups: Fuelling Economic Growth with Strategic Autonomy

“To become a global power, the country must have a self-reliant defence sector driven by indigenous innovation and advanced technologies. Bold thinking and innovation are key to transforming our security landscape.”
– Dr APJ Abdul Kalam, Former President of India

Introduction

The ongoing conflicts in Ukraine and West Asia have underscored a shift in modern warfare, where aircraft, artillery and tanks — once the dominant forces on the battlefield — have seen their roles diminished. Instead, emphasis has shifted toward advanced technologies, precision weaponry and asymmetrical tactics that redefine traditional combat dynamics. Cutting-edge technologies such as artificial intelligence, unmanned aerial vehicles, unmanned underwater vessels and facial recognition systems are taking centerstage. The mass electronic sabotage unleashed in Lebanon, presumed to have been orchestrated by the Israel Defence Forces along with the country’s spy agency, Mossad, serves a stark reminder of the shifts that have taken place in this new faceless war.

Evolution of technology has impacted warfare, but technological advantage may just be reduced to a tactical level when it is taken away from the larger strategic context and regarded as the “sole driver” of success in a war, observes Former Army Chief General Manoj Pande. In his address at a seminar  he also said technologies are emerging in new unchartered domains, and “revolutionising and establishing a ‘new normal’ in different fields”.

Recognizing the need for the Indian military to enhance its readiness in advanced and emerging technologies, a national emphasis has been placed on enhancing research and development (R&D) in these areas.

Following the lead set by the U.S. and Israel, India is now tapping its domestic start-up ecosystem for technological innovation and self-reliance in defence. Indian entrepreneurs are developing niche technologies overtime, which will boost the Indian military’s combat capabilities.

The Old Order Changeth…….

Traditionally, India’s defence sector was dominated by large public sector undertakings and global defence giants. This is undergoing a transformation driven by the emergence and active contribution of startups. These nimble, innovation-driven entities are infusing fresh ideas, and agile approaches into defence equipment production, contributing significantly to the sector’s growth and transformation.

The Indian government has been quick to recognize the immense potential of startups in revolutionizing the defence sector and has taken proactive measures to support their engagement. Initiatives such as the Innovations for Defence Excellence (iDEX) have been launched to create an ecosystem connecting defence industries including micro, small and medium enterprises, startups, individual innovators, academia and R&D institutes to promote innovation and provide a platform for startups to collaborate with the armed forces and defence public sector undertakings (DPSUs). The initiative bridges startups with the military, to innovate cutting-edge solutions tailored to  defence requirements. As a first, iDEX also allows startups to retain their intellectual property (IP), enabling them to explore opportunities in civil and export markets.

The Defence India Startup Challenge has been another vital step in encouraging the participation of startups. It calls upon young enterprises to develop specific technologies, addressing vital capability gaps faced by the armed forces. Financial support such as Technology Development Fund, mentorship, and incubation facilities have further empowered startups to enter the defence manufacturing domain, brimming with confidence and sustainability.

  • Defence India Startup Challenge (DISC): A programme that aims to identify and support startups and innovators with disruptive defence technologies. In February 2023, the Defence Minister launched the ninth edition of the Defence India Startup Challenges (DISC 9) programme, which focuses on cybersecurity and offers 28 problem statements. Additionally, he has inaugurated the iDEX Investor Hub, which has received pledges of over INR 200 Cr from prominent Indian investors.
  • Defence Innovation Organisation (DIO): iDEX is funded and managed by a “Defence Innovation Organisation (DIO)” formed as a “not-for-profit” company in accordance with Section 8 of the Companies Act 2013. It was established to promote innovation and technology development in the defence sector.
  • Technology Development Fund (TDF): A fund that provides financial support to startups and innovators to develop defence technologies. In June 2022, the Defence Minister approved the enhancement of funding under the TDF scheme of the MoD to INR 50 Cr per project from INR 10 Cr.

“India needs your expertise and enthusiasm. The doors are open for innovation, the policies are supportive and the opportunity is unprecedented. Together we will make India not just Aatmanirbhar in defence but a global leader in defence manufacturing”.
– Prime Minister Narendra Modi

Numerous Indian startups have already made significant strides in defence equipment production. For example, companies like IdeaForge, which develops indigenous drones, have their products used extensively by India’s armed forces. Similarly, Tonbo Imaging provides advanced imaging and sensor systems for surveillance and targeting. Another innovative startup, Big Bang Boom Solutions, is engaged in developing AI-based unmanned vehicles and other futuristic defence solutions.

Today, India arguably boasts of the world’s largest defence startup ecosystem. Initially, few believed that startups could significantly address defence needs. However, these entities quickly adapted to meet the challenges thrown at them. Startups now hold the largest market share for armed forces procurement requirements after DPSUs and private industry, with this trend expected to grow in coming years. This success stands as a testament to the collaborative efforts of policymakers, academia, armed forces leadership, and the innovative young minds whose zeal and passion are driving this transformative journey of nation-building.

An Ambitious Vision

The government’s roadmap to making India a $5 tn economy includes measures like inclusive growth, promoting digital economy, fintech, technology-enabled development, climate action, and relying on a virtuous cycle of investment and growth.

The guiding vision of Indian defence startups centers around innovation, self-reliance, and technological excellence to transform defence capabilities and reduce dependence on foreign imports. At its core is the goal to craft state of the art, home grown solutions that address India’s unique and diverse security challenges while aligning with global standards. These startups aim to leverage advancements in technologies like artificial intelligence, unmanned systems, cyber defence, and smart sensors to enhance our national security – glaciated mountains to deserts to sea shores, boost operational readiness and strategic capabilities.

This vision is inspired by initiatives such as “Aatmanirbhar Bharat” and “Make in India,” which emphasize developing robust defence technologies indigenously. Striving to provide adaptable and mission-specific solutions for the armed forces while fostering a culture of innovation and R&D within the industry, startups have led in defence innovation with unprecedented speed and scale. Driven by a culture of cost efficiency, they have delivered economical alternatives to traditionally expensive imports. Collaborating with public sector undertakings, established industry players, and academic institutions, startups seek to build a strong defence ecosystem that not only meets domestic needs but also competes globally in exports.

Drivers of Innovation, Reversing Brain Drain

While India’s state-owned DPSUs will likely remain the mainstay of defence procurement in the foreseeable future, start-ups can go a long way in equipping the armed forces with niche capabilities. With smaller companies pioneering high-tech solutions, the Indian Armed Forces have the potential to become a modern, tech-empowered force in the coming decades.

Startups are also unique for their quick turnaround times in R&D and prototyping. Unlike traditional defence firms that may have long development cycles, startups can rapidly develop, test, and iterate prototypes, allowing for quicker integration of new technologies into active defence use.

The emergence of marquee startups in India has transformed ‘business’ into a highly attractive career path, extending well beyond the traditional mercantile community. “Nearly 40% of India’s startup founders and leaders come from premier engineering colleges and business schools, such as the IITs, IIMs and ISBs. This trend has reversed the nation’s ‘brain drain’ by not only retaining the best and brightest in India, but also by attracting top quality talent of Indian origin back into the country. Finally, capital inflows from global investors have helped catalyse the entrepreneurial spark in India.

On its part to attract foreign investment, the government has increased the Foreign Direct Investment limit in the defence sector from 49% to 74% under the automatic route. This policy shift aims to facilitate technology transfer, bring in specialised expertise, and encourage partnerships with global defence manufacturers. Additionally, the establishment of defence corridors in Tamil Nadu and Uttar Pradesh is intended to create geographically contiguous defence manufacturing hubs. These corridors offer world-class infrastructure, connectivity, and a cluster-based approach for supporting defence manufacturing units.

Furthermore, defence startups are making early forays into markets in Southeast Asia, Africa, and the Middle East. For a country that has traditionally been one of the world’s largest importers of defence equipment, these efforts could elevate India’s position as an exporter, contributing to a more balanced trade portfolio in addition to geopolitical influence.

Challenges Endure: Greater Effort Required

Notwithstanding all the encouragement and facilitation, defence startups have to operate in a challenging environment characterised by high barriers to entry, complex regulatory frameworks and intense scrutiny. The armed forces maintain exceptionally high qualitative standards and demand only the best of the best when it comes to their equipment. Navigating stringent government regulations and security clearances can lead to delays in product development and deployment. Investors often ask founders to stretch the current funding runway for longer by reducing cash burn, and pose tougher questions around the sustainability of business models as well as profitability.

Regulatory Hurdles

One of the primary challenges for startups is navigating India’s complex and often opaque regulatory framework. Lengthy procurement processes, numerous approvals, and bureaucratic hurdles can stifle innovation. While initiatives like iDEX are steps in the right direction, streamlining regulatory processes further, is essential for accelerating growth and making it easier for startups to engage with armed forces and government agencies. For instance, startups trying to supply innovative drone solutions often experience significant lag times due to complex licensing protocols and the extensive testing protocols essential for operational clearance, creating barriers for timely deployment and scaling. India still lacks the agility of countries with established defence industries like the United States or Israel, where startups can quickly take a concept from prototype to deployment.

Funding and Investment

Developing advanced defence technologies requires substantial investment in research and development, making access to capital a critical challenge. Traditional venture capitalists often shy away from investing in defence projects due to long gestation periods and high costs. There is a need for dedicated defence innovation funds and public-private partnerships that could help startups overcome funding hurdles and reduce investment risks. Companies like Tonbo Imaging and ideaForge initially found it difficult to attract venture capital due to high R&D costs and long lead times for defence projects. Although government grants through initiatives like iDEX have been helpful, the level of private sector funding remains limited.

Negotiating the Talent Gap

Startups working on high-tech solutions like AI-based decision support systems, cybersecurity platforms, or advanced avionics have found it difficult to attract and retain talent due to competition with established tech companies. While startups such as CRON Systems have managed to deliver high-quality border security solutions, they still highlight talent acquisition as a critical bottleneck that slows their R&D cycles and product innovation.

Hand Holding by Large Players

While collaboration with established DPSUs and large private players is crucial, it can be challenging for startups to form meaningful partnerships due to differences in scale, speed, and risk tolerance. This requires mechanisms that facilitate structured partnerships, fostering an ecosystem where innovation thrives, and startups can scale up their products more effectively. Differences in organisational structures, project timelines, and risk tolerance can often impede smooth collaboration.

Market Access and Export Challenges

Accessing domestic defence contracts is difficult, but expanding into international markets poses an even greater challenge for startups due to competition from established global players, stringent export controls, and compliance standards. A robust export support system, providing regulatory clarity, market intelligence, and diplomatic assistance will certainly facilitate our startups to compete globally.

Restricted Access to Advanced Testing Facilities

For startups focused on critical defence technologies like autonomous vehicles or combat simulations, access to testing ranges and laboratories is crucial but limited. The struggles of startups such as ideaForge, which faced bottlenecks in testing its drone technology due to restricted access to defence testing ranges, is a case in point.

Building Indigenous Supply Chains

While India’s startups are increasingly developing advanced products, they still remain reliant on foreign suppliers for specialised components, such as microelectronics and high-grade composites. This dependency undermines the government’s ambitions for a fully self-reliant defence industry. Building local supply chains for these components will take time and substantial investment. The need of the hour is to  adopt a phased approach, where essential imports are initially tolerated, as local supply chains are developed, but with clear incentives and roadmaps to replace imports over time.

Balancing Innovation with Security

Security is a major concern in defence space. While startups are encouraged to innovate, they must also adhere to stringent security parameters to prevent misuse and ensure compliance with national security standards. The need for a balanced regulatory framework that allows startups to innovate without compromising national security interests cannot be overemphasised.

Overcoming these challenges requires a holistic approach, blending policy reforms, investment incentives, talent development, and strategic collaborations. By addressing these obstacles, India’s defence startups can truly become engines of innovation, driving self-reliance and global competitiveness in defence technology. Simplifying  procurement processes for startups and creating fast-track pathways to pilot and test technologies is a must. Allowing startups to bypass some traditional procurement steps for trial contracts, rapid prototyping, and testing partnerships could significantly shorten time-to-market and help Indian startups keep pace with technological advances.

Rishab Gulshan, Partner and Director at the Boston Consulting Group feels our young and zealous entrepreneurs have a lot to learn from Israel — widely known as the ‘Startup Nation’. “Like Indian entrepreneurs, their Israeli counterparts also want to build the ‘next big thing’, but the latter are more successful in their pursuits as they do a few things albeit differently. They spend a disproportionate amount of time on R&D, resulting in unique ideas with a global appeal. They follow a ‘lean-startup’ strategy and carry out extensive market experiments before raising large amounts of capital. Apart from being typically older than their Indian counterparts, Israeli entrepreneurs often have prior professional or military work experience”. While some of these traits are cultural, many of them can be imbibed by Indian entrepreneurs to script their own success stories.

Conclusion

India’s defence startups symbolise both an economic and strategic imperative. While challenges remain — particularly around funding, policy, and scale, defence startups are essential to achieving self-reliance and economic growth in the defence sector. Addressing these challenges requires a concerted effort from both the government and the private sector. Reforms in procurement processes, enhanced investment in R&D and structured public-private partnerships, can unlock the full potential of India’s defence startups. By building a supportive ecosystem, India can harness the power of its startups to modernise its defence capabilities, create jobs, and establish itself as a global defence technology hub.

Looking at the flurry of technology missions and the schemes launched by the government, it appears that a concrete effort is being put in place. Several suggestions given above may aid in that effort and may be analysed by policy makers. Scientific breakthroughs will happen only if a conducive ecosphere from problem definition to solution is built. This ecosphere should address concerns of all – from research fellows to policy makers in government. In this connection, it may not be out of place to suggest development of a framework for ‘ease of doing R&D’ to provide facilitation to R&D personnel, monitor their performance and ultimately improve the IP portfolio of the country.

ABOUT THE AUTHOR

Lt Gen Tarun Chawla, was commissioned into the Regiment of Artillery in Jun 1984. He has served with the United Nations Mission in Liberia and has been an instructor at the College of Defence Management at Secunderabad. The officer has commanded an Artillery Brigade in the LC Sector in J&K, and an Artillery Division as part of Army’s Western Command.  He was the Director General Financial Planning, prior to assuming the role of Director General of Artillery.


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