Government Plans Open Tendering In Defence Contracts; Reviews Offset Policy To Boost Private Sector

The Indian government is considering a major shake-up in India’s defence procurement process by easing the nomination-based system of awarding contracts and moving towards open tendering in several key segments.

The shift aims to encourage greater participation from private companies, including micro, small, and medium enterprises (MSMEs), while fostering competition and innovation in the defence sector, a senior official has said.

“The government is reviewing the defence acquisition procedure to increase private sector and MSME participation. One of the proposals is to ease the nomination-based tenders in many areas towards open bidding, which would help bring in more private players,” the unnamed official was quoted by Moneycontrol.

At present, a large share of defence procurement is still carried out through the nomination route, where contracts are directly awarded to state-owned enterprises such as Hindustan Aeronautics Ltd (HAL), Bharat Electronics Ltd (BEL), and Mazagaon Dock Shipbuilders.

While this ensures timely delivery for strategic projects, it sidelines private players, confining them largely to sub-contracting roles.

A move towards open tendering is expected to level the playing field and offer the private industry wider access to contracts, accelerating defence modernisation and reducing India’s dependence on imports.

Industry experts believe that such reforms will also drive cost efficiency, promote technological upgrades, and expand India’s indigenous defence ecosystem.

Why is the defence offset policy under review?

Alongside tender reforms, the government is also reviewing the defence offset policy to make procurement rules more competitive and industry-friendly.

Introduced in 2005, the offset policy requires foreign defence suppliers to reinvest at least 30% of the contract value back into India for contracts worth over Rs 2,000 crore.

These obligations typically involve sourcing components from Indian firms, setting up local manufacturing facilities, or transferring technology to domestic partners.

The objective is to ensure that big-ticket defence imports contribute to building a long-term industrial base instead of adding to India’s import bill.

The Defence Acquisition Procedure (DAP) 2020 had already introduced reforms such as encouraging MSME sourcing, promoting regional investments, and mandating technology transfers.

The fresh review is expected to further streamline procedures, cut red tape, and make DAP more flexible for private players.

Is there a bigger budget push for defence?

The procurement reforms come against the backdrop of a sharp rise in defence spending. In the Union Budget for FY26, the defence ministry received Rs 6.8 lakh crore, accounting for 13.45% of total expenditure. This represents a 9.53% increase over the FY25 allocation, making defence the highest-funded ministry.

With defence corridors already being developed in Uttar Pradesh and Tamil Nadu, the government’s push towards open tenders and revised offset rules signals a broader strategy to position India as a global hub for defence manufacturing.