Indigenous defense industryIndia had the world's second largest army. Its military budget ranked third in the world, higher than both United Kingdom and Russia. However, India was highly dependent on imported military equipment, especially from Soviet Union and later Russia. To reduce dependence on foreign arms, the Indian government has been pushing for indigenous development in the defense manufacturing sector. Over the years, the capital budget for defense has increased to support domestic manufacturing industries.
Since 1990s, as the Soviet Union collapsed, more efforts were made to indigenize not only the production, but also the research and development (R&D) of military equipment. On one hand, there is lack of technology transfer with India’s defense imports, impeding India’s ability to develop and manufacture technically advanced equipment. On the other hand, growth in domestic demand is expected to be robust, providing incentives and opportunities to the industry. Moreover, the Foreign Direct Investment (FDI) for this sector has been increased to 74 percent, and it was opened up to 100 percent for Indian private sector.