Explainer: Defence Ministry’s outreach to MSMEs in smaller cities for boosting indigenous production

In the week that went by, the Ministry of Defence (MoD) stepped out to solicit proposals from the industry, think-tanks, commerce chambers and associated entities to promote Micro, Small and Medium Enterprises (MSMEs) in the arena of Defence production.

The move is aimed at Tier-II and Tier-III cities, which have a strong industrial base and significant MSME presence. As part of the scheme, a national-level MSME conclave and 12 state-level seminars are scheduled to be held in the 2025-26 by the Department of Defence Production (DDP) in the MoD in collaboration with partner agencies and the local industry.

Amidst shifting global power dynamics, geopolitical flux and economic uncertainties that have also impacted Defence supply chains, there has been a strong focus on indigenous production of Defence equipment over the past decade.

Growth of Defence industry

The Defence budget has seen a steady rise, from Rs 2.53 lakh crore in 2013-14 to Rs 6.81 lakh crore in 2025-26, with indigenous Defence production touching Rs 1.27 lakh crore – a rise of 174 per cent from Rs 46,429 crore in 2014-15. India’s defence exports have risen from Rs 686 crore in 2013-14 to Rs 23,622 crore in 2024-25, with the target being Rs 50,000 crore by 2030.

The MoD signed 193 contracts worth Rs 2,09,050 crore in 2024-25, out of which 177 contracts amounting to Rs 1,68,922 crore were awarded to the domestic industry. While the Defence sector is dominated by the public sector, the private industry is now getting deeply involved in the development of indigenous platforms and new-age technologies across different domains of warfare and logistics.

A wide range of modern warships, including aircraft carrier, fighter jets, artillery systems, drones, combat vehicles, radars, missiles, rockets, communication equipment, items of personal use and cutting-edge weaponry is being built within the country.

About 65 per cent of the Defence equipment is now manufactured domestically, a significant shift from the earlier 65-70 per cent import dependency. The Defence industrial base includes 16 Defence public sector undertakings, over 430 licensed companies and approximately 16,000 MSMEs.

The private sector contributes about 21 per cent to the total Defence production. As innovators, fabricators and mediators, MSMEs form a crucial part of the supply chain for larger enterprises in the public as well as private sectors.

Why are MSMEs important?

In India, the total number of MSMEs is estimated to be over 6.3 crore, forming a vital part of the economy. MSMEs contribute around 30 per cent to India's GDP and 45 per cent to the manufacturing output. MSME-related products account for over 45.73 per cent of India's total exports.

According to industry estimates, the MSME sector is projected to grow significantly in the coming years, touching 7.5 crore enterprises by the end of this decade. The vast majority of MSMEs fall into the micro category.

One of the key objectives of the central government’s ‘Make in India’ initiative is to expand the scope MSMEs into the Defence supply chain and thereby boost the self-reliance in the sector, and also contribute towards the burgeoning Defence exports market.

According to an MoD background note, MSMEs are already contributing significantly to Defence manufacturing with thousands of quality products, mainly at sub-system and component level, but they are not fully integrated into the eco-system like the chambers in developed nations.

“Further, the Indian labour laws are not in sync with our competitors in China and ASEAN countries. The value addition by the MSMEs in India is also comparably low. Therefore, despite having immense potential, in terms of know-how and technical expertise, lack of clear policy and organised hand-holding has prevented the full exploitation of MSMEs,” the note states.

Defence Ministry’s plan of action

The primary objectives of the MoD’s scheme is to unlock the potential of the non-Defence sector MSMEs located in Tier-II and Tier-III cities by providing them relevant information about the ‘Make in India’ programmes in the Defence sector and give a new impetus to the development of Defence production, both for domestic needs as well as exports, by involving a large number of MSMEs.

The MoD and its establishments will provide know-how to MSMEs in non-Defence sectors to enable them to enter the Defence sector, enlighten them about the prospective market and business opportunities and also enable institutionalisation of their interaction with foreign manufacturers to encourage wider participation in the offset business industry.

MSME vendors will also be educated about the Defence Procurement Procedure and associated rules and regulations, funding provisions and the ‘Make in India’ categories, besides being connected with original equipment manufacturers and Defence public sector undertakings and ordnance establishments to help them avail opportunities in the Defence sector.