Swadeshi Gambit

By Disha Jain and Tanvi Abhyankar

Welcome back! Our previous article took you through India’s consistent pursuit of Free Trade Agreements (FTAs). FTAs are changing the currents of global commerce. International trade is no longer just about selling commodities; it is being leveraged as a tool to secure a seat at the world’s most influential economic table. Trade deals are only as strong as the cargo they carry. The most important shipment that’s been transferred is not merely smartphones and textiles. The tides are rising high as nations are exchanging sophisticated space and defense systems. Here, we are going to talk about a crucial frontier, Make in India. India once struggled to tackle the problem of technology transfer but is now gearing to set a global standard for strategic autonomy.

Shielding the frontier

What was once a regular import spending for India has now become its very strength. The nation has experienced a structural shift and it steadily builds indigenous capacity across sea and air. Home to one of the world’s most robust military forces, India’s defense manufacturing industry plays a significant role in the economy and is set to accelerate growth. As of FY25, India’s defense production stood at INR 1.5 lakh crore. Defense exports surged to a record INR 23,622 crore in FY 2024–25, compared to less than INR 1,000 crore in 2014, which underscores India’s emergence as a credible and competitive global defense supplier. It supplies wide-ranging defense products including arms, ammunition, sub-systems, complete systems and critical components to about 80 nations, reinforcing its position as a reliable partner in the global supply chain.

Showcasing India’s defense capability, Tejas Mk-1A fighter aircraft and INS Vikrant laid the foundation of the country’s defense ecosystem. The current phase is characterized by sophistication, scale and export ambition. The story of India’s defense indigenisation is woven by a powerful policy architecture. At the centre lies the PIL (positive indigenous list) which is steadily transforming the defense sector from procurement-driven to a strategically guided one.

PIL is essentially a list of defense equipment, components that Indian Armed Forces will procure exclusively from domestic manufacturers. It was introduced under broader reforms of the Defense Acquisition Procedure (DAP) 2020 with the aim to reduce import dependency, promote the motto of Atmanirbhar Bharat through imposition of an embargo on these items after specified timelines.

PIL is a shift away from former practices where imports were the default option and treated the domestic industry secondary. Over the past few years, multiple lists have been notified which cover a wide array of items across services and defense PSUs. They include high-visibility platforms like artillery systems and sensors to the backbone of defense production, that is, the subsystems, spares and components. The visible impact lies in the fact that over 12,000 items have been indigenized and orders worth INR 7,527 crore were placed with domestic vendors as of 2024.

Demand assurance alone is not sufficient; adequate manufacturing capacity and technological capability must be boosted and that is where the PLIs (production linked incentives) come into picture. Though not exclusively a PLI scheme for the defense sector has been outlined, it plays a foundational role by strengthening the related sectors like electronics, semiconductors, specialty steel and telecom. The modern military depends on advanced systems and electronic warfare and hence arises the demand for semiconductor components and precision manufacturing. Policy framework is also supported by the existing Defence Testing Infrastructure Scheme (DTIS) bolstering Defense Industrial Corridors, more specifically the two in Uttar Pradesh and Tamil Nadu. The private sector also has an emerging role and the companies have accounted for about 22% of the defence production in FY 2024-25.

Reaching for the stars

India’s space economy, valued at around US$8.4 billion in 2022, currently accounts for just 2% of the global market. However, it is projected to expand nearly fivefold by 2033, capturing an estimated 8–10% share. The ecosystem has also witnessed the emergence of 399 startups including Pixxel, Dhruva Space, and Skyroot. Alphabet Inc.’s investment of INR 307.08 crore (US$ 36 million) in Pixxel highlights the increasing investor confidence in India’s spacetech sector.

Policy reforms, particularly the Indian Space Policy 2023, alongside institutional support through the Indian National Space Promotion and Authorisation Centre (IN-SPACe), have significantly accelerated private sector participation. The policy permits 100% foreign direct investment (FDI) in satellite manufacturing and provides a structured framework for private engagement. IN-SPACe serves as a single-window facilitator between private players and government bodies such as the Indian Space Research Organisation (ISRO). A key initiative under this framework is the Earth Observation¹ Public-Private Partnership (EO-PPP), which entrusts private entities with end-to-end responsibilities spanning satellite design, development, and operations.

India’s growing competitiveness in the global launch market is reflected in revenues earned from launching foreign satellites, amounting to approximately EUR 323 million and USD 233 million. Earth observation (EO), which involves collecting data on the Earth’s physical, chemical, and biological systems through satellite-based and other remote sensing technologies, remains a critical application area.

Further strengthening the sector, the government in October 2024 announced a dedicated venture capital fund of INR1,000 crore (USD 117.23 million) for the space industry. Building on this, a larger INR10,000 crore (USD 1.18 billion) fund led by IN-SPACe has been established to support investments in over 40 space-tech companies over the next five years.

The GaN breakthrough: Turning rejection into resurrection

In the world of high-stakes defense deals, what isn’t written in the contract is often more important than what is. During the 2016 negotiations for the Rafale fighter jets with France, India sought more than just airframes; it sought the “brain” of modern warfare: Gallium Nitride (GaN) semiconductor technology.

The deal between the two countries included 50% offset clause². However, India wanted more. India requested a Transfer of Technology (ToT) involving the GaN chips. These chips are the secret sauce behind the Rafale’s lethal AESA (Active Electronically Scanned Array) radar. However, citing the technology’s extreme strategic sensitivity, France declined. It was a stark reminder: the most critical “crown jewels” of military tech are never for sale, they must be earned.

Rather than accepting a secondary status, India’s DRDO, led by the Solid State Physics Laboratory (SSPL) in Delhi and GAETEC in Hyderabad, launched a decade-long mission to develop the technology from scratch.

In a historic milestone, Indian scientists cracked the code, successfully fabricating indigenous GaN chips. India has now entered an elite “Club of Seven” (joining the US, France, Russia, Germany, South Korea, and China) capable of designing and manufacturing these “thoroughbred racehorses” of the semiconductor world.

GaN is not just an upgrade; it is a generational leap over traditional silicon. While silicon falters, GaN thrives at temperatures up to 1,000°C. A GaN chip the size of a fingernail can deliver 30 watts of power, operating 300 times faster than silicon. India now owns the IP for its most critical sensors, shielding the nation from future embargos.

What is interesting to note is that building this tech indigenously helps two critical sectors at once. The same GaN chip that can guide a missile to its target is the one that can also help in remote sensing satellites to send crystal-clear data back to help in various missions. One such example is the European Space Agency’s Biomass satellite helping to pierce through forest canopies in order to perform a five-year census of all the trees on Earth.

Providing the runway for takeoff

A very important catalyst for any breakthrough is the support from home turf. Pick any sector from any timeline. For example in the 1970s and 1980s when India’s IT sector was struggling to find its footing, companies like Infosys, Satyam, Mastek, Polaris, Silverline were being founded. In the early years, private capital was hesitant. Software was new, intangible and hard to collateralize.

It was public sector banks and financial institutions that stepped in, providing early capital, long-term credit and the confidence that allowed young software firms to survive their most fragile years. This highlights something bigger: emerging industries rarely grow on market forces alone. They need capital, policy backing and institutional belief. We’ve seen this play out before and we’re seeing it again today.

Ministry of Electronics and Information Technology of India (MeitY) supports R&D projects across academic institutions, research organizations and startups in areas of semiconductors such as nanotechnology, semiconductor materials, processes, chip design and IP cores. One of the initiatives undertaken was the Gallium Nitride (GaN) Ecosystem Initiative - GEECI (Gallium Nitride Ecosystem Enabling Centre and Incubator), a project implemented through Foundation for Science Innovation and Development (FSID) of Indian Institute of Science (IISc), Bengaluru with an outlay of around INR 334 crore which was focused on building an end-to-end ecosystem for GaN-based electronics manufacturing for high-power and high-frequency RF(radio frequency) electronics.

Economic ripples

The defence and space sectors are technological and industrially interlinked and do not operate in isolation. Both rely on common capabilities such as advanced electronics, propulsion systems, materials engineering, and data analytics. For instance, satellite-based surveillance, navigation (NavIC) and communication systems are integral to modern defence operations, while defence-driven innovations in semiconductors and sensors often spill over into civilian space application. This convergence is also visible at the level of supply chains. MSMEs and startups are increasingly participating in both ecosystems, supplying components, subsystems, and specialised services. In regions such as Pune and Tamil Nadu, clusters of firms are emerging that cater simultaneously to defence and space requirements, reinforcing the creation of integrated industrial corridors and innovation hubs.

India’s pursuit of self-reliance in defence and space is not only a matter of strategic autonomy but is rapidly becoming a high-value economic transformation narrative. What is emerging is not two sectors, but a converging ecosystem of advanced manufacturing, deep technology and high-skill employment, driven by policy-driven demand and indigenous innovation. The commitment to source 75% of defence capital is a push that alters demand in this sector, and ensures a predictable and long term market for Indian firms. To facilitate MSME participation, iDEX (Innovations for Defence Excellence)³ provides grants, mentoring and prototype development support to Indian startups and innovators to leverage indigenous technology. Since its launch, it has supported over 600 startups and MSMEs, with Indian Armed Forces procuring items worth more than INR2,400 crore. The parallel, rapid expansion of the space economy fuels economic growth too. The economic survey has projected it to expand to USD44 billion over the next ten years through Earth observation, satellite communications, navigation and the private ecosystem backing. Localisation of technologies such as GaN is an assurance that value addition is retained within the domestic economy and at the same time, dependence on foreign suppliers is brought down. GaN semiconductors are also creating a USD20+ billion opportunity in the high-skill manufacturing ecosystem through domestic procurement mandates, rising domestic production and indigenous technology development.

The decade-long journey to develop GaN chips underscores a simple but powerful lesson: when a clear roadmap is backed by powerful execution and a supportive ecosystem, India is capable of delivering wonders. This success is not limited to strategic domains like space and defence, it holds equally true for emerging sectors across the economy.

However, past experiences also highlight the importance of holistic planning. The push for electric vehicles, while successful in building domestic manufacturing capacity, inadvertently deepened dependence on imports, particularly from China, for critical intermediate components. Strategic initiatives such as the rare earth mission, which gained traction only recently, could have been pursued in parallel to create a more resilient and self-reliant value chain from the outset. This reflects a broader need to move from isolated sectoral pushes to integrated, forward-looking industrial strategies. When India demonstrates the same level of intent, coordination and long-term commitment across strategic sectors and ensures timely implementation, it can unlock transformative growth well beyond space and defence.

At the same time, persistent bottlenecks such as bureaucratic delays and regulatory red tape continue to hinder momentum. Addressing these structural challenges will be critical to fully realizing the vision of Make in India, one where ambition is matched by execution and capability translates into global leadership.

1. Earth observation (EO) is the gathering of data about the Earth’s physical, chemical and biological systems using remote sensing technologies, primarily satellites, alongside aircraft and ground-based sensors.

2. This meant that the French manufacturer of the jets along with its partners had to reinvest INR30,000 crore back into the Indian aerospace and defense sectors.

3. iDEX is an initiative launched by the government half a decade ago to foster innovation in India’s defence and aerospace sectors. It is managed by the Defence Innovation Organization (DIO).