INDIA Trends and Developments Contributed by: Uday S. Ahlawat, Gaurav Bhalla and Shramona Sarkar, Ahlawat & Associates
The Evolving Role of the Government in India’s Defence Sector India’s defence sector is undergoing a significant shift from a largely government-led procurement model towards a broader industrial base involving private companies, foreign investors, start-ups, and technology-driven businesses. Government policy has increasingly focused on expanding domestic manufacturing and facilitating India’s emergence as a defence production and export hub. At the same time, defence remains a highly regulated sector in India. Market entry in India mainly involves various aspects including manufacturing licensing, foreign investment approvals, procurement-spe - cific requirements and export controls, depending on the nature of the product, activity and proposed transaction. The regulatory framework is also evolv - ing, with reforms aimed at simplifying procurement and increasing private-sector participation. Against this backdrop, businesses operating or intending to operate in this sector need to consider general corpo - rate, investment framework and the defence-specific requirements that apply to their intended business activities in India. Legal framework and market overview Principal legislation and policy instruments India’s defence regulatory framework spans the life cycle of a defence product − from manufacturing and investment to procurement and export. At the manu - facturing stage, the Industries (Development and Regulation) Act 1951 (the “IDR Act”) and the Arms Act 1959 (the “Arms Act”) govern the manufacture and other regulated activities involving products relevant to the defence sector (including arms and ammuni - tion). The products requiring an industrial licence are identified in the licensing framework set out under Press Note 1 (2019 Series), with the applicable licens - ing requirement depending on the nature and classifi - cation of the product. Defence procurement is principally governed by the Defence Acquisition Procedure 2020 (the “DAP 2020”), which applies to capital acquisitions by the Ministry of Defence (MoD) and other relevant gov - ernment authorities. It sets out the procurement cat - egories, eligibility requirements, indigenous content
obligations, and other conditions applicable to capital procurement. For exports, defence and dual-use products are regulated under the Foreign Trade (Development and Regulation) Act 1992, the Foreign Trade Policy and the Special Chemicals, Organisms, Materials, Equipment, and Technologies (SCOMET) framework administered by the Directorate-General of Foreign Trade (DGFT). The applicable controls depend on the classification of the product, technology or software and, in relevant cases, the proposed end use and the destination of use of the product. Relevant regulatory authorities The MoD, particularly the Department of Defence Production (DDP), is the principal government depart - ment for implementation of defence production and procurement policy. The Department for Promotion of Industry and Internal Trade (DPIIT) is relevant to industrial licensing and foreign direct investment (FDI) policy, while the Ministry of Home Affairs (MHA) administers significant aspects of arms licensing and security clearances. Recent policy direction and evolving regulatory regime The policy direction has been towards increasing domestic production, private-sector participation, and defence exports. This has been accompanied by measures aimed at developing defence industrial cor - ridors, encouraging start-ups and micro, small, and medium enterprises (MSMEs), as well as creating greater opportunities for private manufacturers and technology companies. The aforementioned intent of the Indian government is also reflected in the transition of the regulatory frame - work regarding acquisition of defence related prod - ucts. The MoD released the Draft Defence Acquisition Procedure 2026 (the “Draft DAP 2026”) for comments in February 2026. The Draft DAP 2026 proposes sub - stantial changes to the capital procurement frame - work. At present, however, it remains important to distinguish the Draft DAP 2026 from the operative pro - curement framework (ie, the DAP 2020), which contin - ues to be the current relevant framework pertaining to the procurement of defence-related products.
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