As India modernises its defence capabilities under the “Make in India” initiative, the country’s defence sector is opening up to foreign investments and collaborations like never before. For Russian businesses seeking to enter this promising market, understanding the regulations and licensing landscape is critical to setup a defence company in India successfully.
While India remains committed to self-reliance, it recognises the need for advanced technologies and foreign expertise to strengthen its indigenous manufacturing ecosystem. This creates a timely opportunity for Russian suppliers to align with India’s needs while building a sustainable presence in the world’s third-largest defence market.
India’s Push for Defence Indigenisation
India has significantly increased its defence budget to support modernisation and reduce its import dependency by promoting local manufacturing under the Make in India programme. The government has identified the defence sector as a critical area for achieving strategic autonomy, encouraging foreign companies to participate in domestic manufacturing through joint ventures, technology transfers, and direct investments.
For Russian companies with a long-standing defence relationship with India, this presents a natural path to setup a defence company in India while ensuring alignment with India’s national interests and procurement policies.
FDI Policy and Routes for Foreign Defence Suppliers
India allows Foreign Direct Investment (FDI) of up to 74% under the automatic route in the defence sector, and higher percentages with government approval if the investment is expected to bring modern technology or for other reasons to be recorded.
This means that Russian companies can either establish wholly-owned subsidiaries (within the allowed FDI cap), joint ventures with Indian partners, or strategic alliances depending on the business model, technology protection concerns, and market strategy. Choosing the right route is essential for operational control, compliance with licensing conditions, and participation in Indian defence procurement processes.
Industrial Licensing under the Arms Act
One of the critical steps to setup a defence company in India is obtaining an industrial licence under the Arms Act, 1959 and the Arms Rules, 2016. The Department for Promotion of Industry and Internal Trade (DPIIT) issues these licences after consulting with the Ministry of Defence and security agencies.
Russian companies intending to manufacture defence equipment in India must submit detailed applications that include technical information about the product, proposed plant location, investment structure, and security measures. The licensing process also involves background checks and security clearances, making it essential to plan timelines accordingly to avoid project delays.
Defence Acquisition Procedure and Procurement Framework
India’s Defence Acquisition Procedure (DAP) governs how defence equipment is procured, ensuring transparency and preference for indigenous content and manufacturing. Foreign suppliers aiming to setup a defence company in India must align with DAP to participate in government tenders, requests for proposals (RFPs), and strategic partnership projects.
The DAP encourages “Buy (Indian-IDDM)” and “Buy (Indian)” categories, where preference is given to products manufactured in India with higher indigenous content. For Russian companies, aligning manufacturing facilities in India with these requirements not only facilitates participation in procurement but also helps meet offset obligations, positioning the business as a serious long-term partner in India’s defence ecosystem.
Offset Policy and Technology Transfer
India’s offset policy requires foreign suppliers to reinvest a percentage of the contract value into India’s defence ecosystem through direct purchases, investments in local manufacturing, or technology transfers. Offsets can be a strategic tool for Russian businesses to build relationships within India’s defence and aerospace industries while fulfilling legal obligations.
Structuring offset agreements carefully to protect proprietary technology while complying with India’s offset guidelines will ensure a balanced and beneficial entry into the market. Furthermore, the opportunity to collaborate with Indian defence companies on research and development projects under offset requirements can lead to deeper, long-term partnerships.
Vendor Registration and Quality Compliance
Registering as a vendor with India’s Ministry of Defence, Defence Public Sector Undertakings (DPSUs), and the armed forces is a necessary step to supply products or participate in tenders. This involves demonstrating the company’s technical capabilities, financial soundness, manufacturing quality, and security clearances. Indian authorities also require compliance with quality standards laid down by the Directorate General of Quality Assurance (DGQA) for defence products. Russian companies planning to setup a defence company in India should invest in building robust quality management systems, certifications, and documentation processes to facilitate smooth vendor registration and participation in procurement processes.
Taxation and Customs Considerations
Establishing a defence business in India involves managing indirect taxes such as Goods and Services Tax (GST) on domestic transactions and understanding customs duties on imported components or technology. While some exemptions exist for defence-related imports, these require precise documentation and approvals.
Russian companies should engage with local tax advisors to structure their business efficiently, leveraging available exemptions while ensuring compliance with India’s tax laws. This proactive approach can help in avoiding delays in customs clearance and in managing operational costs effectively.
Protecting Intellectual Property in India
Defence manufacturing often involves proprietary technologies that require robust protection, particularly when entering a new market. Russian defence suppliers should prioritise registering patents, trademarks, and designs in India to safeguard their intellectual property before starting manufacturing or technology transfer processes.
Including detailed intellectual property protection clauses in contracts with Indian partners, employees, and vendors can further reduce risks of unauthorised use or disclosure. India’s legal system provides reliable protection for intellectual property, but proactive registration and clear contractual frameworks are essential for effective enforcement.
Strategic Structuring for Market Entry
Russian businesses can choose from various market entry structures depending on their objectives and operational needs. Establishing a wholly-owned subsidiary under the permitted FDI limits offers complete operational control and technology protection. Alternatively, forming joint ventures with Indian partners can ease market entry by leveraging the partner’s local expertise, network, and regulatory experience.
Strategic collaborations under the Strategic Partnership Model can provide opportunities to participate in high-value defence projects with shared risks and investments. It is advisable to seek legal counsel to structure the business in a way that aligns with operational goals, regulatory requirements, and technology protection strategies.
Risk Management and Dispute Resolution
Operating in India’s defence sector involves regulatory complexity and long-term project timelines, making risk management a critical component of your business strategy. Russian companies should conduct thorough due diligence before partnering with Indian entities, assessing financial stability, regulatory compliance, and operational capabilities.
Drafting clear agreements with arbitration clauses can facilitate efficient dispute resolution. India’s arbitration laws support the enforcement of foreign arbitral awards, providing a reliable framework for dispute resolution should conflicts arise during operations.
Aligning with India’s Defence Export Vision
India is actively working towards enhancing its defence exports, aiming to transform into a manufacturing hub for the region. For Russian companies, this creates an opportunity to use India as a base for regional and global defence exports while meeting local procurement needs. By setting up a defence company in India aligned with the Make in India vision, Russian suppliers can contribute to India’s indigenisation goals while expanding their reach into other markets through cost-efficient manufacturing and strategic logistics advantages.
Conclusion
India’s evolving defence sector under the Make in India initiative offers substantial opportunities for Russian businesses looking to setup a defence company in India. By understanding and navigating the legal and regulatory frameworks—including FDI policies, industrial licensing, procurement procedures, offset obligations, and intellectual property protection—Russian suppliers can establish a strong, compliant, and profitable presence in India’s defence ecosystem.
The path to entering India’s defence sector requires careful planning, strategic partnerships, and a commitment to align with India’s self-reliance goals. With a structured approach, Russian companies can not only expand their global presence but also contribute meaningfully to India’s defence modernisation journey, securing long-term business potential in one of the world’s most promising defence markets.
