A windfall is coming for India's surging defence exports

Economic Times

2 days ago

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Indian defence stocks are surging following NATO's announcement to increase defence spending
The stock market movement today could be a signifier of big things in store for India's defence export companies. Defence stocks such as Sika Interplant Systems, Data Patterns, BEL and BEML rose up to 5% on Thursday morning. The trigger was a NATO announcement. India's defence sector, once considered heavily import-dependent, is now emerging as a credible global supplier. In recent years, a series of policy reforms, investments and growing industrial capabilities have propelled Indian defence exports to new highs. Now, a windfall is taking shape which can boost India's defence exports further. NATO has announced at the recent summit in The Hague to increase member nations' defence spending to 5% of GDP by 2035. The convergence of NATO's spending surge, Europe's quest for strategic autonomy and India's growing defence manufacturing capability has created a rare alignment of interest and opportunity. For Indian defence manufacturers, the coming decade may well mark a transformational phase, one that could redefine the country's role in global military supply chains.
Reliance Defence has secured Rs 600 crore worth of export order from Germany's leading defence manufacturer Rheinmetall Waffe Munition GmbH. Following its recently announced strategic partnership with Rheinmetall, this order is one of the largest contracts in the high-tech ammunition domain. Reliance will supply ammunition like artillery shells and explosives from a new facility to be set up in Maharashtra.
The deal comes after Reliance Defence's joint ventures with Dassault Aviation and Thales of France. Recently, Reliance Defence, a subsidiary of Reliance Infrastructure, also entered into a strategic cooperation agreement with Germany's Diehl Defence. The partnership will focus on the local production of the Vulcano 155mm precision-guided munition system, an advanced artillery shell designed for long-range, high-accuracy strikes. Reliance Defence deal with Rheinmetall could be a precursor of a windfall as Europe's planned hike in defence spending will offer more opportunities for Indian defence manufacturers, especially for supply of sub-systems, components, ammunition and other equipment as well as joint projects.
NATO's move stems from a growing recognition of geopolitical volatility and strategic vulnerability. Russia's war in Ukraine has exposed the military deficiencies of several European nations and underscored their dependency on the US for security guarantees and military equipment. As a result, the alliance is now aiming for deeper self-reliance and rapid capacity enhancement. Raising defence spending to 5% of GDP is not just symbolic; it translates to hundreds of billions of dollars in additional defence outlay annually across NATO members. Meeting this demand through existing supply chains will be challenging, especially in Europe, where defence manufacturing capacity is limited, and workforce shortages are acute.Further adding momentum to this shift is the Draghi report on EU competitiveness. Authored by former ECB President Mario Draghi, the report calls for a comprehensive revitalisation of Europe's industrial capacity, with a strong emphasis on achieving strategic autonomy in the defence sector. Crucially, it recommends reducing the EU's reliance on the US for defence imports and instead investing more within Europe.However, building up this capacity will take years, and in the interim, the EU will need reliable, cost-effective external partners to bridge the gap. India, with its increasingly advanced defence manufacturing capabilities and growing diplomatic ties with Europe, is uniquely positioned to fill this role. Moreover, an expanded defence manufacturing base in Europe will also need component suppliers which can be an opportunity for India's growing defence industrial base with a large number of small and big private players.
Amidst a push for 'Atmanirbhar Bharat', India's defence exports reached a record high of Rs 23,622 crore (approximately $2.76 billion) in the last financial year 2024-25. Compared to the previous fiscal year's figure of Rs 21,083 crore, this represents an increase of Rs 2,539 crore, equivalent to a 12.04% growth. As per the Ministry of Defence (MoD), India already exports to around 80 countries and aims for Rs 50,000 crore in exports by 2029, strengthening its global defence manufacturing footprint. Compared to a revenue of Rs 686 crore in FY 2013-14, the FY 2024-25 number of Rs 23,622 crore is a 34 times increase, as per the MoD.The export performance of Defence Public Sector Undertakings (DPSUs) has demonstrated substantial improvement with a 42.85% increase in FY 2024-25, indicating strong international acceptance of Indian defence products and the sector's capability to integrate into global supply networks, as per the MoD. In FY 2024-25, private sector contributions amounted to Rs 15,233 crore, whilst DPSUs generated Rs 8,389 crore in exports. These figures show an improvement from FY 2023-24, when private sector exports stood at Rs 15,209 crore and DPSU exports at Rs 5,874 crore.The government has implemented numerous policy changes in recent years to strengthen India's defence sector, MoD said. These include streamlining industrial licensing processes, deregulating components from licensing requirements, and lengthening license validity periods. Furthermore, during the previous financial year, the Standard Operating Procedure for export authorisation underwent simplification, with additional provisions introduced to enhance the country's export capabilities.
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What does NATO's 5% spending deal really mean? Public sector companies such as Hindustan Aeronautics Limited (HAL) and Bharat Electronics Limited (BEL) have been at the forefront, but the private sector is rapidly catching up. The entry of major conglomerates like Larsen & Toubro, Tata Advanced Systems and Reliance Defence has created a dynamic and competitive ecosystem. India's defence sector is poised for substantial growth amid global shifts, according to a recent report by brokerage firm Nuvama. Defence exports are expected to reach Rs 203 billion in FY25, with a government target of Rs 500 billion by FY29. European defence orders could begin flowing as early as the first half of FY26, marking a major milestone for the sector. Given Europe's manufacturing constraints, Indian defence companies are well-positioned to capitalize on rising export opportunities. Europe's limited local manufacturing capacity and workforce shortages are opening doors for Indian defence manufacturers to step in. "Europe's defence expansion is constrained by limited local manufacturing capacity and skilled workforce shortages, especially in aerospace and missile supply chains. As a result, European nations are increasingly looking at partnerships and collaborations with Indian defence manufacturers," Nuvama said. This creates an environment where Indian defence manufacturers can step in, not just as low-cost suppliers but as serious contributors to high-tech systems and platforms too.
India's competitive advantage lies in its cost structure, manufacturing capacity and rapidly maturing technological base. Its large, skilled workforce and expanding industrial infrastructure give it the scalability that many European countries currently lack. Furthermore, India's recent advances in defence R&D, ranging from the Tejas light combat aircraft and BrahMos missiles to UAVs and naval systems, have increased its credibility as a supplier of complete solutions, not just parts. This opportunity is as much geopolitical as it is commercial. India is seen as a neutral, democratic and increasingly strategic partner by many European nations. Unlike imports from China or Russia, Indian defence exports come with fewer political strings and are more acceptable in terms of values and alignment. This strategic trust could lead to deeper cooperation beyond simple exports, including co-development initiatives, joint ventures and technology partnerships in critical sectors such as artificial intelligence, cyber warfare, electronic systems and autonomous weapons.However, the road ahead is not without challenges. Indian firms must meet stringent NATO quality standards and ensure timely deliveries, especially in an industry where reliability is paramount. Regulatory bottlenecks, such as export licensing and customs clearances, need to be streamlined further. The government's continued support in terms of policy clarity, R&D funding, and export facilitation will be critical. Additionally, India must focus on moving up the value chain -- from supplying components and subsystems to offering full-fledged platforms and integrated systems.