Why in the News?

After Operation Sindoor, India’s military strike against Pakistan in May, there has been a lot of talk about strategy — but it has also given a strong boost to India’s defence sector, especially to private companies and small businesses (MSMEs) involved in defence manufacturing.

What impact did Operation Sindoor have on the performance of defence company stocks?

• Sharp Rise in Defence Stocks: Defence company stocks surged by nearly 21% in the week when India conducted Operation Sindoor, significantly outperforming the broader market’s 3.1% rise in the Nifty50 index during the same period.
• Sustained Positive Momentum: In the week following Operation Sindoor, defence stocks continued to rise by 5.4%, whereas the Nifty50 index actually declined by 0.5%, showing sustained investor confidence in the defence sector.
• Reversal of Previous Underperformance: Before Operation Sindoor, defence stocks were lagging behind the top 50 companies on the National Stock Exchange, but the operation acted as a catalyst that boosted their performance substantially.

Why is the growth in India’s defence production and exports significant?

• Enhances Self-Reliance: The growth signals India’s increasing capability to produce defence equipment domestically, reducing dependence on imports. Eg, defence production reached a record ₹1.3 lakh crore in FY24, showing strong progress in indigenous manufacturing.
• Boosts Economic and Strategic Strength: Rising defence exports, which have doubled since FY20 and crossed ₹20,000 crore in recent years, help strengthen India’s global defence market presence and contribute to economic growth. The government’s export target of ₹30,000 crore for the current fiscal reflects this ambition.
• Encourages Innovation and Industry Growth: Sustained double-digit growth since FY22 encourages innovation and investment in defence technology, benefiting both public and private sectors.

How have private companies and MSMEs contributed to India’s defence sector in recent years?

• Growing Share in Defence Production: Private defence companies increased their share of total defence production from about 20% in FY17 to nearly 24% in FY25, showing their expanding role in the sector. Eg, companies like Paras Defence and Space Technologies have become prominent players.
• Leading Role in Defence Exports: Private firms now account for the majority share of defence exports due to export authorisations, helping India expand its footprint in the global defence market. Eg, several private companies contribute to exports of small arms and protective gear.
• MSMEs as Key Component Suppliers: MSMEs supply crucial components to the defence industry, with government procurement from MSMEs doubling the target to ₹13,000 crore in FY25. Eg, MSMEs provided goods worth around ₹3,000 crore between FY18 and FY20, with larger orders thereafter.

What are the steps taken by the Indian government? 

• Promoting Domestic Manufacturing: The government has set ambitious targets to boost indigenous defence production, encouraging self-reliance. Eg, defence production crossed ₹1.3 lakh crore in FY24 and is targeted at ₹1.6 lakh crore in FY25.
• Supporting MSMEs through Procurement: Mandatory public procurement targets have been set to ensure MSMEs receive steady orders and support. Eg, goods worth ₹13,000 crore were procured from MSMEs in FY25, more than double the target.
• Encouraging Private Sector Participation: Policies have facilitated the growing involvement of private companies in defence production and exports. Eg, private companies increased their production share from 20% in FY17 to nearly 24% in FY25, and dominate defence exports.

Way forward: 

• Enhance Technology Upgradation and Innovation: Invest more in R&D and foster collaboration between public and private sectors to develop cutting-edge defence technologies, ensuring global competitiveness and self-reliance.
• Strengthen MSME Integration and Export Support: Expand financial and policy support to MSMEs for scaling up production capacity and quality, and create dedicated export facilitation mechanisms to boost India’s defence exports further.

Mains PYQ:

[UPSC 2014] Defence manufacturing in India is still in a nascent stage. What influence this is expected to have on Indian defence and economy in the short and long run?

Linkage: Recent data from the article clearly demonstrates a significant “fillip” in India’s defence production, directly linked with the “nascent stage” described in the 2014 PYQ. This 2014 question is highly relevant as it highlights a past perception that “defence manufacturing in India is still in a nascent stage. In this articel, the discussions on the efficacy and confidence in India’s home-grown defence capabilities have increased. Following “Operation Sindoor,” defence stocks of 18 companies on the Nifty Defence Index rose by almost 21% in a week in May, significantly outperforming the Nifty50 index.

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