India’s defence-tech startups are thriving

ANIRUDH SHARMA was a computer-science undergraduate with no training in aerospace when he co-founded Digantara, which gathers intelligence on satellite movements, in 2020. Today it employs 150 people in India, Singapore and America and is valued at more than $65m. That may be a modest sum by Western standards. But it makes Digantara one of the big success stories in India’s flourishing defence-and-aerospace startup scene.

“The Indian defence-tech ecosystem is really buzzing right now,” says Suyash Singh, the founder of GalaxEye, which provides radar and other imagery from satellites. In part this is because India’s startup ecosystem is evolving more broadly. Venture-capital firms and freshly minted billionaires are looking beyond consumer apps as places to invest. Defence-tech firms have benefited from the Indian government’s efforts to promote indigenisation. The most immediate reason for the buzz, however, has been the shock of war.

Earlier this year India suffered from a terrorist attack for which it blamed Pakistani militants. It conducted air strikes against Pakistan, a campaign it called Operation Sindoor, triggering a four-day air-and-missile war. India’s high-end missiles performed well, but its air defences were “stressed by drone saturation” and the challenge of distinguishing real weapons from decoys, says Sameer Lalwani of the German Marshall Fund, a think-tank in Washington, forcing it to use expensive interceptors against cheap projectiles.

Just days after the guns fell silent, India launched “emergency procurement” worth almost $5bn. That sum is around 25% of its annual capital spending on defence, notes Mr Lalwani. A substantial chunk of the spending is dedicated to replenishing ammunition, missiles and interceptors that the armed forces consumed during the operation. But there is also a renewed focus on innovation. Sindoor revealed that India needs much better drones and counter-drone defences. That is precisely where many startups have an advantage over established Indian defence firms such as Tata, Kalyani and Mahindra. Intelligence, electronic warfare and artificial intelligence are also priorities.

Almost every Indian defence startup has a story of how they helped the war effort, with some raising new cash from investors off the back of their involvement. Digantara was “constantly giving reports to the armed forces”, says Mr Sharma. It sent reports, for example, on the areas that Chinese and Pakistani spy satellites could—and could not—observe. Just as the Russian invasion has honed the drone skills of Ukraine and its Western allies, the experience of Sindoor gave Digantara a “clear understanding” of how to make their services more useful in conflict. “We had to change a lot of our features post-Sindoor,” says Mr Sharma. The firm’s revenues from defence have surged.

Sindoor was only the latest conflict to deepen the relationship between India’s defence establishment in Delhi, the capital, and the mostly Bangalore-based startup scene. Ankit Mehta, the co-founder of IdeaForge, a big drone-maker, says that after a border clash with China in 2020 there was a push to “robustly expose the Indian [defence-startup] ecosystem to reality”. Firms increasingly take their products to front-line commands to test them in real-world conditions, such as the thin air and freezing temperatures of the mountainous northern border, where drone batteries drain quickly and parts seize up.

The origins of the relationship, however, lie further back. In 2018 India’s defence ministry started channelling money to startups and other defence companies under a scheme called Innovations for Defence Excellence, or IDEX. The idea was to connect businesses with military units that wanted specific problems solved. The army, for example, wants a sniper robot that works in sandy and muddy conditions.

For some IDEX projects, the government promises a minimum order, giving startups guaranteed revenue if their prototype works. The steady growth of the IDEX pot has helped that of the sector. The largest individual grants have jumped from $178,000 in 2021 to almost $3m in 2024, and the scheme has attracted more than 600 companies. “IDEX has been huge” for the defence-tech ecosystem, says Kaushik Mudda, whose company, Ethereal, makes complicated parts with high-tech machines designed and built in India.

Behind the government’s push is a long-standing desire for more self-sufficiency in weapons. India has for decades been one of the largest arms importers in the world, making it particularly vulnerable to embargoes of ammunition and spare parts, especially by America. The government now demands that a growing proportion of weapons and their components be designed and manufactured in India. Its list swells each year.

Even more than money, perhaps the most telling sign of the government’s seriousness is that “startups are looking very positively towards the army,” as one founder puts it. India has a well-deserved reputation for bureaucracy and baroque procurement rules. Yet tech startups find the relationship a surprisingly easy one.

Still, plenty of challenges remain. Dhinesh Kanagaraj, the co-founder of Fabheads, which 3D-prints carbon-fibre parts, notes that Western companies can be skittish about selling dual-use components. That is especially so if those parts might find a place in India’s nuclear-weapons programme. Indigenisation is a solution to this problem. India’s own export-control laws, too, deprive startups of what a founder calls “rampant opportunities”.

The other challenge is access to private capital. Investors are setting up funds dedicated to defence and aerospace. But the sums pale compared to funds that invest in consumer tech. “Early-stage funding has improved a lot,” says Mr Sharma. The next level—capital to scale up business to take on the established firms and then crack the foreign market—has yet to materialise. America has more than a dozen “unicorns”—private firms valued at more than $1bn—in defence-related areas; Europe at least three. India is chasing its first. ■