India is transforming its defence landscape, making strategic moves to become a global powerhouse in defence manufacturing through the Make in India initiative. With the goal of reducing dependence on imported defence equipment and expanding defence exports, India is now aiming to capture a share of the $2.4 trillion global defence market. Historically one of the largest importers in the defence sector, India’s reliance on foreign arms has been an issue, but recent changes have spurred a new era for domestic defence technology startups.

Richard McCallum, Vice Chair of UKIBC India, aptly highlighted this paradox: “It is a paradox that while India has one of the largest defence industrial complexes in the developing world, it continues to be overwhelmingly dependent on imports for arms and equipment.” However, this dependency is gradually changing. The government’s proactive measures to promote indigenous defence manufacturing, alongside a steady influx of private players, are creating opportunities for venture capitalists in India to invest in cutting-edge defence tech startups.

Export Opportunity for Defence Startups

India’s defence strategy now extends beyond self-reliance; it’s also focused on establishing India as a reliable exporter of defence technology. By relaxing export regulations, fostering public-private partnerships, and actively courting international buyers, India is positioning itself as a defence supplier to over 90 countries. Geopolitical tensions, such as the Russia-Ukraine war and the Israel-Hamas conflict, have driven nations to bolster their defence capabilities, increasing the demand for high-quality defence products. In Q1 of FY 2024-25, India’s defence exports surged by 78%, reaching ₹6,915 crore, illustrating the sector’s potential.

Emerging Sub-sectors in Defence Technology

The growing Indian defence ecosystem spans a range of advanced technology areas, offering diverse investment opportunities for venture capitalists in India. Key sub-sectors include:

• Artificial Intelligence (AI): AI applications in defence encompass training, surveillance, logistics, and autonomous systems. The Defence Research and Development Organization (DRDO) has established the Centre for Artificial Intelligence and Robotics to focus on decision-making and reconnaissance.
• Cognitive Technologies: Cognitive tech can automate complex tasks such as contract reviews, image classification, and inappropriate content detection. DRDO’s research in cognitive tech enhances situational awareness and decision-making capabilities in complex defence systems.
• Stealth and Anti-Stealth Technologies: India’s Advanced Medium Combat Aircraft (AMCA) project incorporates stealth technology to evade detection. DRDO is also developing anti-stealth technology to counter enemy stealth capabilities, which is critical for modern warfare.
• Robotics: From unmanned aerial vehicles to ground and underwater robots, robotics reduces risk for personnel and enhances operational effectiveness. DRDO’s Centre for Robotics and Unmanned Systems is leading in this domain, developing tech for surveillance, search and rescue, and ordnance disposal.

Success Stories of Indian Defence Startups

India has already witnessed the rise of successful defence startups. For example, ideaForge, founded by IIT Bombay alumni, dominates the Indian UAV market with a market share of 50%. With products like SWITCH and NETRA V4+, ideaForge’s technology serves the Indian Armed Forces and state police departments. The company’s successful listing on the stock exchange in 2023, with a market cap of INR 3,000 crores, is a testament to the sector’s potential.

Similarly, Alpha Design Technologies, acquired by Adani Defence, has developed a range of advanced defence electronics and avionics. Its products span from radar systems to target acquisition technologies, positioning it as a key player in India’s defence sector.

Government Support and Investment Potential

The Indian government has allocated ₹6.21 lakh crore for defence in the FY25 Union Budget. Through initiatives like the iDEX scheme, which fosters innovation in defence tech, the government supports startups with tax incentives and funding. Key programs, such as the Defence India Startup Challenge, help identify and back disruptive technologies, while the Defence Innovation Organization manages iDEX to drive tech advancement.

What Avinya Looks for in Defence Tech Startups

At Avinya Ventures, we evaluate defence startups based on their technical capabilities, intellectual property, market size, and relationships with established defence players. We believe that while the government has made great strides, more support will accelerate the growth of this vital sector. With substantial opportunities and tailwinds in defence tech, venture capitalists in India can expect significant returns from early investments in this high-potential industry.

From the desk of Gaurav VK Singhvi, Managing Partner, Avinya VC.