Defence Buying 2.0: India Shifts from ‘Made in India’ t...

India is set to overhaul its defence procurement rules under the new Defence Acquisition Procedure, shifting focus from “Made in India” to “Owned by India.” The revised L1 formula will reward companies investing in indigenous design, intellectual property, and advanced R&D, while procurement timelines may shrink by up to 50%. The reforms are expected to boost domestic defence manufacturers, startups, and long-term technological self-reliance.

India is set to overhaul its defence procurement rules under the new Defence Acquisition Procedure (DAP), shifting focus from simply manufacturing in India to owning critical technologies and intellectual property. The revised L1 formula will reward companies investing in indigenous R&D, while procurement timelines could shrink by up to 50%. The reforms are expected to boost domestic defence firms, startups, and long-term technological self-reliance.

India’s defence procurement ecosystem is undergoing a strategic reset. With geopolitical tensions rising and supply chains becoming increasingly uncertain, the government is moving beyond assembly-led manufacturing toward technology ownership and indigenous design capabilities. The upcoming Defence Acquisition Procedure reforms signal a major doctrinal shift that could reshape the country’s defence industrial base.

Shift in Doctrine: From ‘Made in India’ to ‘Owned by India’

The draft Defence Acquisition Procedure marks a fundamental shift in procurement philosophy.

Old approach:

Focus on assembling or manufacturing foreign technology in India.
Technology transfers from global OEMs.
Lowest-cost bidder (L1) often won contracts.

New approach:

Preference for companies that own intellectual property (IPR).
Incentives for indigenous design and R&D.
Extra credits for higher technical performance.

Key doctrinal changes

Procurement Model	Old System	New DAP Approach
Core philosophy	Made in India	Owned by India
Bid selection	Lowest cost (L1)	Cost + technical credits
R&D emphasis	Limited	High priority
Indigenous IP	Not mandatory	Strongly incentivized

Expert Insight: “The shift to technology ownership could fundamentally change India’s defence industry by creating globally competitive companies with proprietary platforms.”

Q: What does ‘Owned by India’ mean in defence procurement? A: It refers to systems where Indian companies own the design, source code, and intellectual property rather than relying on foreign technology transfers.

Q: Why is this shift important? A: Owning technology improves strategic autonomy, reduces import dependence, and boosts domestic innovation.

L1 Formula Overhaul: Technical Superiority Gets Weightage

Traditionally, defence contracts were awarded to the lowest technically qualified bidder under the L1 system. The new draft introduces technical scoring.

Key changes in the L1 model:

Additional credits for enhanced performance parameters (EEP).
Up to 10% extra credit for indigenous design.
Weightage for companies owning critical source codes.

New evaluation structure

Parameter	Weightage Impact
Base technical compliance	Mandatory
Enhanced performance	Extra scoring credits
Indigenous design/IPR	Up to 10% bonus
Cost competitiveness	Final evaluation factor

This hybrid approach aims to balance cost efficiency with technological capability.

Q: Will the lowest bidder still win contracts? A: Not always. Technical superiority and indigenous design will now influence final contract decisions.

Q: How does this benefit Indian defence companies? A: Firms investing in R&D and proprietary technology will gain a competitive advantage.

Startup Ecosystem Boost: Assured Orders and Lower Risk

A major feature of the new procurement policy is the support for defence startups and MSMEs.

Key startup-friendly measures:

Assured orders for indigenous solutions.
Reduced financial burden of trial phases.
Protection from “no cost, no commitment” testing cycles.

Startup impact snapshot

Factor	Old System	New System
Trial costs	Borne by startups	Reduced financial risk
Order visibility	Uncertain	Assured procurement pathways
R&D incentives	Limited	Strong incentives

This could accelerate innovation in areas like:

Drones and autonomous systems.
AI-enabled defence tech.
Cybersecurity platforms.
Electronic warfare systems.

Q: Why is the government focusing on defence startups? A: Startups can drive innovation, faster prototyping, and indigenous technology development.

Q: Which sectors may benefit the most? A: Drone tech, AI defence systems, electronic warfare, and advanced materials.

Faster Procurement: Timelines to Shrink by Up to 50%

Defence procurement in India has historically been slow, with projects taking years to finalize. The new draft proposes a significant acceleration.

Timeline improvements:

Procurement cycles to be 30–50% faster.
Streamlined approval processes.
Shorter technical and cost negotiation phases.

Procurement timeline comparison

Stage	Old Timeline	New Proposed Timeline
Technical evaluation	Long, multi-year	Reduced duration
Cost negotiations	Extended cycles	Faster approvals
Total procurement cycle	Several years	30–50% shorter

Q: Why were procurement timelines slow earlier? A: Complex approval layers, technical trials, and cost negotiations caused delays.

Q: How will faster procurement benefit the industry? A: It improves order visibility, reduces working capital strain, and accelerates revenue recognition.

Foreign Procurement: Still Allowed but with Higher Scrutiny

While the focus is on indigenous systems, the new rules still allow foreign acquisitions for critical technologies.

New approach to imports:

High-level approvals required.
Parallel development of domestic alternatives.
Strategic import of cutting-edge systems.

Q: Will India stop importing defence equipment? A: No. Imports will continue for critical technologies but with a parallel push for domestic development.

Q: How does this help the defence ecosystem? A: It ensures operational readiness while building long-term self-reliance.

Sectoral Impact: Likely Winners from Defence Buying 2.0

Defence sector heatmap

Defence PSUs: 🟢 Strong policy tailwinds.
Private defence majors: 🟢 Order visibility.
Defence startups: 🟢 Structural boost.
Electronics and avionics firms: 🟢 Technology demand.
Import-dependent firms: 🟡 Neutral to cautious.

Potential beneficiaries:

Indigenous shipbuilders.
Aerospace component manufacturers.
Electronics and radar companies.
Defence software and AI firms.

Market Outlook: Defence Stocks and Valuation Re-Rating

The new procurement framework could:

Improve order book visibility.
Enhance margins through indigenous designs.
Trigger P/E re-rating across defence stocks.

If execution matches policy intent, the sector could enter a multi-year earnings compounding cycle.

Expert Insight: “Policy clarity and faster procurement cycles could unlock significant alpha generation in India’s defence sector over the next decade.”

Reliable and Trusted News Source

This development was reported by The Economic Times, one of India’s most trusted financial and business news platforms.

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⚠️ DISCLAIMER: We Are Not Financial Advisors This article is for informational and educational purposes only and should not be construed as investment advice. Stock markets involve risk, and readers should conduct their own research or consult a certified financial advisor before making any investment decisions.