From workshops to warships: The rising tide of MSMEs in Indian defence ecosystem

India’s Micro, Small, and Medium Enterprises (MSMEs) have long served as the backbone of the nation’s economy, contributing a substantial 30% to the GDP and driving half of its exports. Today, their growing partnership with the Indian Navy is not only bolstering the defence sector but also reshaping MSMEs into pivotal players in India’s quest for self-reliance and maritime supremacy. Through forward-thinking policies, innovation-driven initiatives, and dedicated capacity-building programs, the Indian Navy has enabled these enterprises to evolve from humble workshops into strategic contributors to India’s maritime strength.

Across the globe, the role of small and medium enterprises in defence is well-established, particularly in countries like the United States and European nations such as Germany and the UK. In the US, SMEs contribute significantly to the Pentagon’s supply chain through programs like the Small Business Innovation Research (SBIR), which provides dedicated funding and mentorship. Similarly, Europe emphasizes SME involvement in its defence strategy under initiatives like the European Defence Fund, which allocates a substantial portion of its resources to foster innovation among smaller enterprises. India’s efforts, while commendable, can draw further insights from these international models to enhance its own ecosystem.

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The Indian Navy’s Commitment to Indigenisation and MSME Growth

As a cornerstone of the Atmanirbhar Bharat initiative, the Indian Navy has embraced indigenisation as a fundamental pillar of its operational and strategic roadmap. With an ambitious pipeline of 66 ships on order and 50 vessels under construction in Indian shipyards, the Navy has cemented its commitment to local sourcing, creating a robust ecosystem for domestic industries, particularly MSMEs. Projects worth approximately ₹2,200 crore have already been allocated to MSMEs, fostering economic growth while enhancing India’s defence readiness.

In comparison, countries like Germany leverage their Mittelstand, medium-sized enterprises that form the backbone of the economy, for defence contracts, focusing on long-term partnerships and quality assurance. The US Navy, too, prioritizes local sourcing, but with a stronger emphasis on public-private partnerships that allow smaller firms to scale rapidly while meeting stringent quality and innovation requirements. India’s model is evolving in a similar direction, but greater alignment of policy incentives with operational needs could further enhance MSME participation.

Innovation and R&D: Empowering MSMEs to Break New Ground

The Indian Navy’s focus on cutting-edge technology has unlocked unprecedented opportunities for MSMEs to innovate. Flagship programs like Swavlamban have catalysed collaborations between MSMEs, startups, and the Navy, leading to remarkable advancements such as autonomous underwater swarm drones, AI-driven weaponised systems, and advanced firefighting robots. With over 1,100 proposals submitted under the program and 118 enterprises selected for development projects, Swavlamban has proven instrumental in introducing new players to the defence ecosystem.

Globally, innovation ecosystems in the US and Europe have long integrated SMEs into defence R&D frameworks. DARPA (Defense Advanced Research Projects Agency) in the US, for example, has consistently funded disruptive technologies, with SMEs being key beneficiaries. Similarly, NATO encourages member nations to harness SME innovation for collective defence capabilities. India’s Swavlamban is a promising counterpart, but expanding access to funding, fostering global collaborations, and streamlining intellectual property processes could accelerate its impact.

Capacity Building: Strengthening MSMEs for the Defence Sector

The Indian Navy’s Indigenisation Plan 2015–2030 has resulted in the development of approximately 3,400 indigenous items, including critical machinery, aviation components, and weaponry. This initiative has not only enhanced the Navy’s operational readiness but also provided MSMEs with the training and resources to meet stringent defence manufacturing standards. Skill development workshops, quality assurance programs, and knowledge-sharing initiatives have further augmented the capabilities of these enterprises. Through mentorship and hands-on guidance, the Navy has helped MSMEs overcome technical and operational hurdles, enabling them to scale their operations and establish a competitive edge on the global stage.

In the US, capacity-building efforts for SMEs often involve partnerships with academic institutions and large defence contractors under frameworks such as the Mentor-Protégé Program. European nations, meanwhile, use defence-specific clusters, like the French Aerospace Valley, to concentrate expertise, resources, and infrastructure for SMEs. India’s efforts, while impactful, could benefit from adopting similar cluster-based models and leveraging international best practices to create regionally specialized hubs for MSME development.

Success Stories: Navigating Toward Excellence

The Indian Navy’s collaboration with MSMEs has yielded numerous success stories, showcasing the transformative potential of this partnership. Small-scale manufacturers have played crucial roles in projects such as the Ammunition Cum Torpedo Cum Missile (ACTCM) barges, essential for transporting critical supplies. Similarly, over 120 MSMEs contributed to the construction of the Diving Support Vessels Nistar and Nipun, exemplifying the Navy’s commitment to fostering indigenous shipbuilding. One of the most noteworthy achievements includes the development of advanced sonar systems by MSMEs in collaboration with the Navy’s technical teams. These sonar systems, integral to anti-submarine warfare, underscore the potential of MSMEs to deliver world-class defence solutions. Additionally, startups delivering AI-powered operational tools and MSMEs designing modular combat systems demonstrate the breadth and depth of indigenous innovation.

Similar successes are evident globally. For instance, the UK’s Type 26 frigate program involves contributions from over 100 SMEs, demonstrating how small players can impact high-profile projects. The US defense industry has seen SMEs revolutionize key areas such as cybersecurity and drone technologies. By studying these models, India’s MSMEs can further optimize their contributions and ensure sustainable growth in the defence ecosystem.

Catalysing Defence Exports: Charting a Global Course

The Indian Navy’s indigenisation initiatives have not only strengthened domestic defence capabilities but also positioned India as an emerging exporter of naval technologies. MSMEs have played a pivotal role in delivering world-class platforms, from ship components to software solutions, to international markets spanning Southeast Asia, Africa, and the Middle East. India’s indigenously built patrol vessels, bolstered by MSME contributions, have garnered global acclaim, enhancing the nation’s reputation as a reliable defence partner.

In contrast, the US and European nations dominate global defence exports, driven in part by SME contributions to advanced systems. Programs such as NATO’s Framework Nations Concept ensure that SMEs have access to a broader market. India’s focus on indigenisation is gradually enabling its MSMEs to compete in this space, but robust marketing, enhanced product certification, and bilateral agreements could further boost India’s defence export potential.

Navigating Challenges and Setting Course for the Future

Despite the significant strides made, MSMEs continue to face challenges such as limited access to funding, technological gaps, and intense global competition. Recognising these hurdles, the Navy and the government have introduced initiatives like the Technology Development Fund (TDF) and Innovation for Defence Excellence (iDEX), fostering deeper collaboration between MSMEs and the armed forces. Simplified procurement processes, greater transparency, and public-private partnerships are further empowering MSMEs to navigate the complexities of the defence sector.

Globally, SMEs in defence grapple with similar challenges. In Europe, stringent export regulations often limit market access, while US SMEs face rising costs of compliance. India must address these challenges through streamlined procurement policies, enhanced credit access, and a stronger focus on global partnerships, ensuring MSMEs thrive in an increasingly competitive landscape.

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Building Warships and a Brighter Future

The Indian Navy’s collaboration with MSMEs has redefined India’s defense manufacturing capabilities, turning small enterprises into indispensable partners in the nation’s quest for self-reliance. By integrating innovation, capacity building, and economic growth into its indigenisation framework, the Navy has not only strengthened India’s maritime prowess but also positioned the nation as a rising global force in defense production. This journey toward self-reliance is set to achieve a historic milestone on 15 January 2025, when the Indian Navy will commission three frontline combatants Nilgiri, Surat, and Vaghsheer at the Naval Dockyard, Mumbai.

This commissioning is a testament to India’s progress in indigenous shipbuilding, with all three platforms designed and constructed entirely at Mazagon Dock Shipbuilders Limited (MDL). Nilgiri, the lead ship of Project 17A, represents a leap forward in stealth technology, while Surat, the final ship of Project 15B, is an exemplar of modern destroyer capabilities. Vaghsheer, the sixth and final submarine of the Scorpene-class, underscores India’s expertise in underwater warfare with modular designs that allow for cutting-edge upgrades like Air Independent Propulsion (AIP). Together, these platforms not only enhance the Navy’s combat readiness but also highlight the critical role of MSMEs and strategic collaborations in driving such achievements.

As these vessels join the fleet, they symbolize more than just advancements in defense technology they embody the collective resilience and ingenuity of India’s defense ecosystem. This historic day will highlight how the Indian Navy’s integration of MSMEs into its operations mirrors global best practices, such as the US Navy’s reliance on SMEs through innovation programs or Europe’s cluster-based development models, while tailoring them uniquely to India’s ambitions. With such milestones, the Navy and MSMEs are not just building ships and submarines; they are charting a course toward self-reliance, maritime strength, and a future where India’s economic and strategic aspirations converge seamlessly on the global stage.

(Commander Rahul Verma (Retd) is an Emerging Technology and Prioritisation Scout for a leading Indian Multi-National Corporation, focusing on advancing force modernisation through innovative technological applications and operational concepts. With 21 years as a Naval Aviator, including a distinguished role in the Indian Navy’s Technology Development Acceleration Cell, he brings diverse aviation experiences, from Seaking Pilot to RPAS Mission Commander and Flying Instructor.)