Open Interest: Defence Is No Longer About Hardware, It's e-R&D And AI Play

India is on the brink of a DefTech revolution. Startups and major players alike are integrating advanced technology into defence and aerospace manufacturing.

Over the past decade — particularly through the last five Aero India events — India's defence and aerospace industry has evolved from merely manufacturing hardware to developing engineering designs and software for global system integrators.

India's IT companies are gradually recognising the increased presence of global OEMs in India for engineering R&D, establishing large campuses near skill pool hubs. In the last five years, there has been a significant ramp-up in development and testing work for aerospace and defence within India.

Indian listed IT companies, previously slow to enter this vertical, are now scaling up operations to seize this high-skill, high-revenue, and high-margin opportunity.

Today, India boasts one of the largest domestic pools of e-R&D skilled employees globally, attracting global OEMs to move their operations to India. In FY24, India's defence product exports reached Rs 21,000 crore, with a target of Rs 31,000 crore by FY26. This figure excludes services provided by India-based development centres to global OEMs, indirectly contributing to service exports.

During the 15th edition of Aero India, several trend shifts were observed.

India's defence and aerospace industry is now focusing on indigenous engines. Companies are partnering with DRDO, especially in the private sector, to develop engines. The shift from 'Build to Print' to 'Build to Spec' is a key trend, fostering technology creation in the engine space for aircraft and drones. Indian private sector companies are testing liquid and solid propellant engines, leveraging access to specialised materials for design, manufacturing, and testing.

The Hindustan Aeronautics Ltd. episode highlights the need for supply chain management. The delay in engine supplies for the LCA Tejas Mk-1A production exemplifies the absence of a robust supply chain. HAL is establishing a supply chain for future engines co-produced in India and for the Tejas aircraft. It has enlisted Tata Advanced Systems, L&T, and VEM to manufacture the Tejas' aerospace structure, aiming to expedite Tejas deliveries to 20-24 units by next year, with 12 aircraft slated for delivery this calendar year.

Private sector participation in DRDO projects has increased. Key projects previously stalled due to PSU bandwidth limitations are now progressing with private sector assistance. Private companies are collaborating with DRDO on proof of concept, testing, and commercial production, utilising modern technological processes to roll out products faster, embedded with contemporary software and AI.

Drone technology has advanced, with Indian startups developing solutions for drone surveillance and counter-drone technology. Bolstered by the government's iDEX program, Indian players are creating counter-drone technology to detect and neutralise drone attacks within specific geographies. The focus has shifted from assembling parts to manufacturing all components within India, through indigenous design and testing for drone production.

Maritime surveillance and reconnaissance has emerged as a significant area in recent years. India will induct autonomous unmanned boats for maritime surveillance and reconnaissance this year, designed and manufactured through the iDEX program.

Additionally, iDEX is collaborating with start-ups to monitor global vessel movements through the Indian Ocean and Bay of Bengal.

Indian defence companies are transitioning into DefTech companies, leveraging technology to enhance opportunities beyond hardware.