OPINION | The New Tug-of-War in India’s Military Modernisation: Can PSUs Deliver at the Pace the Services Now Demand?

by Aritra Banerjee

India’s defense ecosystem is undergoing its most significant transformation since Independence. The country is producing more military equipment domestically than ever before, crossing ₹1.50 lakh crore in total defense production in 2024–25, with indigenous output reaching record highs. Exports, once negligible, have risen to ₹23,622 crore, and the government is publicly targeting ₹50,000 crore in the coming years. These figures reflect ambition and momentum. Yet beneath the surface, a sharp friction is developing between the rapid operational needs of the armed forces and the pace at which India’s traditional public-sector defense manufacturers can deliver.

This tension is not new. The Services have long argued that procurement cycles are too slow, platforms take too long to mature, and quality control remains inconsistent. What has changed is the tempo of the battlefield and India’s geostrategic environment. The post-Galwan Line of Actual Control standoff, ongoing counterterror pressures from Pakistan, and rapid technological disruptions, especially in drones, electronic warfare, and precision weapons, have compressed the timelines within which the military expects new systems. The Services no longer have the luxury of waiting a decade for a program to stabilize.

Several recent examples highlight the gap. Project 75I, intended to deliver India’s next generation of submarines, remains caught in a cycle of re-tendering and renegotiation. The program has become emblematic of the Ministry of Defence’s slow-moving acquisition culture, often described by analysts as “challenging, complex, and tedious.” Similarly, although the Light Combat Aircraft program ultimately produced an airworthy indigenous fighter, it has taken more than four decades to mature. Even today, after the signing of a ₹62,370 crore order for additional Tejas Mk-1A aircraft, the Air Force’s long-standing concerns about HAL’s production rate linger.

Quality has become another point of friction. The Tejas crash at the Dubai Airshow in 2025, which HAL insists was an isolated incident, nevertheless sharpened concerns about quality assurance, certification timelines, and export readiness. Within the Services, especially the IAF and Navy, there is growing impatience with systems that look good on paper but take years to reach frontline reliability.

At the institutional level, the divide is wider. Public-sector undertakings still dominate defense manufacturing. Their structures are large, capital-intensive, and often governed by legacy rules that slow adaptation. Their procurement philosophies emphasize long project cycles and rigid specifications. However, the Services increasingly seek rapid prototyping, spiral development, mid-course corrections, and tight user feedback loops, an approach far more common in private-sector aerospace and defense development.

The contrast is even clearer when viewed against the rise of private-sector players, especially start-ups in the iDEX and SPRINT (Navy) ecosystem. These firms deliver rapidly iterated prototypes, integrate real-time feedback, and operate on compressed timelines. Some of India’s most significant technological breakthroughs in the past three years, AI-enabled radar processing, autonomous loitering munitions, and shipborne surveillance drones, have come not from PSUs but from small, aggressive companies working directly with user directorates. Over 200 such contracts have been awarded since 2018, and the Services often cite them as proof that rapid innovation is possible within India’s system, just not under the traditional PSU model.

The HAL–HENSOLDT agreement signed at the Dubai Airshow 2025 captures both sides of the debate. On one hand, it represents a historic breakthrough: Germany transferring complete technology, design rights, and manufacturing IP for a LiDAR-based helicopter Obstacle Avoidance System, the first major Indo-German defense tech partnership in nearly three decades. For HAL, this marks a shift from licensed production to high-end co-development. Yet officials privately acknowledge that even with such groundbreaking agreements, execution will be the real test. The Services expect integration across multiple helicopter platforms quickly, while HAL’s legacy workflows may struggle to match that pace.

This tug-of-war is unfolding at a time when India’s geostrategic environment is unforgiving. The PLA is deploying new drones, EW systems, and air defense capabilities on the LAC every few months. Pakistan continues to modernize specific capability niches, particularly in the air domain, with ongoing U.S. support for its F-16 fleet. The Indian military cannot afford procurement bottlenecks or decade-long development cycles.

The Services increasingly argue that modern warfare does not allow slow industrial processes. They often point to Ukraine, where drones, loitering munitions, and counter-UAS systems evolve rapidly in combat. The Red Sea crisis has shown how distributed maritime logistics require agile technological adaptation. In this era, the military believes the defense-industrial base must move at the speed of threat evolution, not at the pace of committee-based approvals.

To be fair, PSUs have delivered major successes. Mazagon Dock Shipbuilders has transformed from a delayed-delivery outlier into one of the world’s fastest naval shipyards, delivering frontline warships on compressed schedules. BEL has emerged as a leader in electronic warfare, software-defined radios, and advanced sensors. HAL’s helicopter ecosystem remains unmatched in India, and its partnership with Safran for the IMRH engine signals a forward-looking shift. Yet friction with the Services persists because the operational environment is evolving faster than institutional reform.

India now stands at a crossroads. MoD officials prefer PSUs as reliable custodians of strategic technology, given their state-controlled structure and insulation from commercial volatility. The Services prefer a mixed ecosystem in which PSUs build large platforms while the private sector, MSMEs, and start-ups provide agility. The challenge is aligning these approaches without slowing modernization.

If India wants to meet its 2035 military capability targets, its defense-industrial ecosystem must embrace shorter development cycles, deeper user integration, and a hybrid PSU–private architecture that rewards speed and technical competence. The question is no longer whether PSUs can produce; it is whether they can adapt to the tempo required by twenty-first-century warfare.

This is the heart of the tug-of-war shaping India’s military modernization. And it will determine whether India becomes a true defense manufacturing power or continues waiting for its most critical systems to arrive on time.

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About Author

Aritra Banerjee is a Defence, Foreign Affairs & Aerospace Journalist and Co-Author of the book The Indian Navy @75: Reminiscing the Voyage. Having spent his formative years in the United States before returning to India, he brings a unique global perspective to his work. A graduate in Mass Media from the University of Mumbai, he holds a Master’s in International Relations, Security & Strategy from O.P. Jindal Global University, along with a CPD-accredited Professional Certificate in Strategic Communications from King’s College London (War Studies). He has contributed to national and international publications across TV, Print, and Digital platforms, reporting on major Defence, Security, and Aerospace events in India and Europe, and spending extended periods in Kashmir, engaging with communities and gaining firsthand perspectives that inform his work. Twitter: @Aritrabanned