India’s Defence Procurement Reforms: Unlocking Opportunities for MSMEs, Start-ups, and Private Industry

Introduction

The Ministry of Defence, Government of India, is undertaking a strategic revision of its procurement framework to enhance transparency, competitiveness and industry participation in defence contracting. As part of this initiative, the ministry is moving away from the nomination-based system of awarding contracts and adopting open tendering in key segments. This reform is expected to significantly increase access for private sector entities, including micro, small and medium enterprises (MSMEs), and foster innovation across India’s defence ecosystem.

At present, defence procurement in many segments is awarded directly to public sector undertakings (PSUs) such as Hindustan Aeronautics Ltd (HAL) and Bharat Electronics Ltd (BEL), bypassing competitive bidding. While this ensures timely delivery for strategic projects, it limits private sector participation and confines many firms to sub-contracting roles.

The proposed shift to open tendering is expected to create a more competitive landscape, allowing private industry,including MSMEs and start-ups,to bid directly for contracts. This will not only diversify the supplier base but also accelerate innovation and reduce procurement costs.

In parallel, the government is reviewing the Defence Offset Policy to make it more industry-friendly and flexible. The revised framework will continue to mandate a minimum 30% reinvestment for foreign contracts exceeding ₹2,000 crore, while encouraging technology transfer, local sourcing and regional investment.

The offset policy, introduced in 2005, was designed to leverage India’s defence imports to build a stronger domestic industrial base. Under this system, foreign suppliers winning large contracts must fulfil obligations such as sourcing components from Indian firms, establishing manufacturing facilities, or transferring technology to local partners.

The Defence Acquisition Procedure (DAP) 2020 already includes provisions to reward MSME sourcing, promote regional investments and facilitate technology transfers. The current review aims to further simplify compliance and align procurement rules with industry capabilities.

Who Can Apply?

The following categories of entities are eligible to participate in upcoming open tenders under the revised DAP framework:

Private sector companies registered in India are eligible to participate. This category includes Micro, Small and Medium Enterprises (MSMEs), start-ups and emerging defence manufacturers, as well as established defence contractors and system integrators.

This includes Micro, Small and Medium Enterprises (MSMEs), which play a vital role in innovation and supply-chain development. Their participation will ensure wider industrial involvement and support the government’s objective of strengthening domestic capabilities.

Start-ups and emerging defence manufacturers are also encouraged to apply. Their entry brings new technologies, agile solutions, and fresh perspectives that can complement traditional players in the defence ecosystem.

In addition, established defence contractors and system integrators form an important category of eligible applicants. With their extensive experience, technical expertise, and proven track record in handling complex projects, they provide the stability and reliability needed for large-scale defence initiatives.

The reforms are expected to particularly benefit MSMEs by removing structural barriers to entry and offering direct access to high-value contracts. This aligns with the government’s broader “Make in India” and “Aatmanirbhar Bharat” initiatives.

How to Apply?

Interested bidders must monitor official tender notifications issued by the Ministry of Defence via:

• Defence Procurement Portal: https://defproc.gov.in
• Central Public Procurement Portal (CPPP): https://eprocure.gov.in
• Defence PSUs and corridor websites for segment-specific opportunities

Applicants will be required to submit a comprehensive bid dossier as part of the application process.

• This dossier must include details of the applicant’s technical and financial qualifications, clearly demonstrating their capacity to undertake and deliver the project successfully.
• It should also provide evidence of prior experience in defence manufacturing or infrastructure development, showcasing completed projects or ongoing contracts that highlight relevant expertise.
• For companies classified as Micro, Small and Medium Enterprises (MSMEs), the dossier should include MSME registration details along with any other relevant certifications that establish their eligibility.
• Foreign suppliers will be expected to submit detailed offset implementation plans, outlining how they intend to meet the prescribed offset obligations under Indian defence procurement rules.
• Finally, all applicants must ensure strict compliance with the Defence Acquisition Procedure (DAP) 2020 and any subsequent amendments, confirming that their proposals align with current regulatory and procedural requirements.

The government may also introduce pilot tenders or phased implementation to test the revised framework before full-scale rollout. Stakeholders are advised to prepare early and align internal systems with anticipated changes.

India’s defence corridors in Uttar Pradesh and Tamil Nadu are expected to play a key role in absorbing new investments and offset obligations. These clusters offer ready infrastructure, skilled labour and policy incentives for defence manufacturers.

Industry bodies such as SIDM, FICCI and CII have welcomed the reforms, noting that open bidding and offset flexibility will improve procurement transparency and attract new entrants to the sector.

The FY26 Union Budget allocated ₹6.8 lakh crore to the Ministry of Defence,13.45% of the total outlay and a 9.53% increase over FY25,underscoring the government’s commitment to defence modernisation. A significant portion of this capital outlay is expected to be channelled through competitive procurement.

Conclusion

This reform marks a pivotal shift in India’s defence procurement strategy, opening the door for broader industry participation and reducing reliance on state-owned entities. By encouraging open bidding and revising offset obligations, the government aims to build a more resilient, competitive and innovation-driven defence sector.

Stakeholders are encouraged to engage proactively with the revised DAP framework and prepare for upcoming tender opportunities that will shape the future of India’s defence ecosystem.

FAQs

1.What is the Defence Acquisition Procedure (DAP) 2020?

The Defence Acquisition Procedure (DAP) 2020 is the Ministry of Defence’s comprehensive policy framework that governs the planning, approval and execution of defence procurement in India. It outlines acquisition models for domestic and foreign vendors, offset requirements, and provisions for “Make in India” initiatives.

2.What is open tendering in defence procurement?

Open tendering refers to a transparent and competitive bidding process where contracts are awarded based on merit rather than direct nomination. Under the revised DAP framework, the Ministry of Defence is moving away from nomination-based awards to open bidding, allowing private companies,including MSMEs and start-ups,to compete for defence contracts.

3.Who can apply for defence tenders under the revised DAP?

Eligible applicants include:

• Private sector companies registered in India
• Micro, Small and Medium Enterprises (MSMEs)
• Start-ups and emerging defence manufacturers
• Established defence contractors and system integrators
• Foreign Original Equipment Manufacturers (OEMs) participating in offset obligations
• Joint ventures and consortiums (subject to FDI norms)
• Public Sector Undertakings (PSUs), though no longer on a nomination basis

4.How does the offset policy support the Indian defence industry?

India’s offset policy requires foreign suppliers winning contracts above ₹2,000 crore to reinvest at least 30% of the contract value in India. This can be fulfilled through local sourcing, technology transfer, manufacturing partnerships or training initiatives. The policy aims to strengthen India’s domestic defence ecosystem and reduce import dependency.

5.What documents are required to apply for a defence tender?

Applicants must submit a comprehensive bid dossier including:

• Technical and financial qualifications
• MSME registration and certifications (if applicable)
• Experience in defence manufacturing or infrastructure
• Offset implementation plans (for foreign suppliers)
• Compliance with DAP 2020 and any amendments

6.Where can I find defence tender notifications?

Tender notices are published on:

• Defence Procurement Portal
• Central Public Procurement Portal (CPPP)
• Defence PSU and corridor websites for segment-specific opportunities

7.How will MSMEs benefit from the new procurement reforms?

The shift to open tendering removes structural barriers for MSMEs, allowing them to bid directly for high-value contracts. This supports wider industrial participation and aligns with national initiatives such as “Make in India” and “Aatmanirbhar Bharat.”

8.What role do defence corridors play in procurement?

India’s defence corridors in Uttar Pradesh and Tamil Nadu provide infrastructure, skilled labour and policy incentives for manufacturers. These clusters are expected to absorb new investments and offset obligations under the revised DAP framework.

9.What is the budget allocation for defence procurement in FY26?

The FY26 Union Budget allocated ₹6.8 lakh crore to the Ministry of Defence, representing 13.45% of the total outlay and a 9.53% increase over FY25. A significant portion of this capital expenditure will be directed through competitive procurement channels.