NEW DELHI — India’s rapid ascent as a defence exporter is reshaping regional security dynamics, presenting Australia with a rare opportunity to diversify its military supply chains and deepen strategic ties in the Indo-Pacific, according to a new analysis by the Lowy Institute. The report, released this week, argues that India’s expanding defence industrial base—now exporting record volumes of military hardware—could align with Australia’s own efforts to bolster domestic production and reduce reliance on traditional Western suppliers.
The findings come as both nations navigate an increasingly contested Indo-Pacific, where China’s military expansion and supply chain vulnerabilities have prompted a rethink of defence partnerships. For Australia, India’s emergence as a cost-competitive manufacturer of missiles, radar systems, and naval vessels offers a potential alternative to overstretched Western defence industries. For India, collaboration with Australia could accelerate its ambitions to become a global defence hub while securing access to advanced technologies.
Yet the path to deeper cooperation is fraught with challenges, from bureaucratic hurdles to geopolitical sensitivities. The Lowy Institute’s analysis warns that without streamlined regulatory frameworks and sustained political commitment, the promise of Indo-Australian defence industrial collaboration may remain unfulfilled.
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What Happened
India’s defence exports surged to a record $2.63 billion in the fiscal year 2024-25, according to data from the Ministry of Defence, marking a 22% increase from the previous year. The growth reflects a deliberate push by New Delhi to reduce its dependence on foreign arms imports—historically dominated by Russia—and position itself as a net exporter of military technology. Key export destinations now include Southeast Asian nations (Vietnam, the Philippines, Indonesia), African countries (Nigeria, Egypt), and Middle Eastern partners (UAE, Saudi Arabia).
The Lowy Institute’s report, titled “India’s Defence Export Rise: Opportunities for Australia in the Indo-Pacific”, identifies three areas where collaboration could yield mutual benefits:
1. Joint Development of Defence Technologies: India’s expertise in unmanned aerial vehicles (UAVs), electronic warfare systems, and maritime surveillance equipment could complement Australia’s advanced but smaller-scale defence industry.
2. Supply Chain Diversification: Australia’s 2020 Defence Strategic Update and the AUKUS pact (with the U.S. and UK) have prioritised domestic production and secure supply chains. India’s manufacturing base offers a cost-effective alternative for non-nuclear systems.
3. Regional Influence: Both nations share strategic interests in Southeast Asia, where India’s growing defence export network could help Australia expand its security footprint without direct military deployments.
The report also highlights existing bilateral defence ties, including the AUSINDEX naval exercises and the 2020 Comprehensive Strategic Partnership, which elevated defence cooperation to a “2+2” ministerial dialogue format. However, it cautions that bureaucratic delays, differing procurement processes, and India’s state-dominated defence sector could hinder deeper industrial integration.
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Why It Matters
The potential Indo-Australian defence collaboration carries implications far beyond bilateral trade. At its core, the partnership reflects broader shifts in the Indo-Pacific’s security architecture, where middle powers are seeking to reduce dependence on traditional allies while countering China’s military expansion.
# For Australia: Breaking Free from Supply Chain Vulnerabilities
Australia’s defence industry has long relied on U.S. and European suppliers, but recent global disruptions—from the COVID-19 pandemic to the Ukraine war—have exposed the fragility of these supply chains. The AUKUS submarine deal, for instance, faces delays due to U.S. industrial capacity constraints, while European defence firms are prioritising NATO commitments. India’s defence sector, by contrast, offers scalability, lower costs, and a growing portfolio of indigenously developed systems.
The Lowy Institute’s report notes that Australia’s 2024 Defence Industry Development Strategy explicitly calls for diversifying suppliers to mitigate risks. India’s BrahMos cruise missiles, Akash air defence systems, and offshore patrol vessels—all of which have found international buyers—could fit into Australia’s needs for precision strike, air defence, and maritime domain awareness.
# For India: A Gateway to Advanced Technologies and New Markets
India’s defence export growth is a cornerstone of its “Make in India” initiative, which aims to transform the country from the world’s second-largest arms importer to a global manufacturing hub. However, India still lags in high-end defence technologies, such as stealth aircraft, advanced radar systems, and AI-driven warfare platforms. Collaboration with Australia could provide access to these capabilities, particularly in electronic warfare and unmanned systems, where Australian firms like CEA Technologies and EOS Defence Systems have developed niche expertise.
Moreover, Australia’s Five Eyes intelligence-sharing network (though not a member, India has deepened intelligence ties with Australia) and its strong relationships with Southeast Asian nations could help India expand its defence footprint in a region where China’s influence is growing.
# For the Indo-Pacific: A Counterbalance to China’s Dominance
Both India and Australia are wary of China’s military assertiveness, from its expansion in the South China Sea to its growing defence ties with Pacific Island nations. While neither country seeks a formal alliance, their collaboration could serve as a soft counterbalance to Beijing’s dominance in regional defence supply chains.
India’s no-strings-attached defence exports—unlike Western arms sales, which often come with political conditions—have made it an attractive partner for nations seeking to diversify their military procurement. Australia, meanwhile, has been expanding its defence engagement in Southeast Asia, including joint exercises with Vietnam and the Philippines. A combined Indo-Australian approach could offer regional partners a third option between Western and Chinese suppliers.
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Background and Context
# India’s Defence Export Surge: How Did We Get Here?
India’s rise as a defence exporter is the result of a decade-long policy push to modernise its military-industrial complex. Key milestones include:
– 2014: “Make in India” Initiative – Launched by Prime Minister Narendra Modi, this policy aimed to boost domestic manufacturing, including in defence. The government set a target of $5 billion in annual defence exports by 2025 (a goal nearly achieved in 2024-25).
– 2020: Liberalised FDI Norms – The government raised the foreign direct investment (FDI) limit in defence from 49% to 74% under the automatic route, attracting global firms like Lockheed Martin, Boeing, and Saab to set up manufacturing units in India.
– 2022: Defence Export Promotion Policy – The Ministry of Defence introduced financial incentives for exporters, streamlined export licensing, and established a Defence Export Promotion Council to facilitate overseas sales.
– 2023: Strategic Partnerships with Private Firms – The government awarded major contracts to private companies like Tata Advanced Systems, Larsen & Toubro, and Adani Defence, reducing the dominance of state-owned enterprises like Hindustan Aeronautics Limited (HAL).
These reforms have paid off. India’s defence exports grew fivefold between 2017 and 2025, with missiles (BrahMos, Akash), artillery guns (Dhanush), and naval vessels leading the charge. The country is now the world’s 23rd-largest arms exporter, according to the Stockholm International Peace Research Institute (SIPRI).
# Australia’s Defence Industrial Shift
Australia’s defence strategy has undergone a radical transformation since 2020, driven by concerns over China’s military expansion and the need to reduce reliance on U.S. supply chains. Key developments include:
– 2020 Defence Strategic Update – The government announced a $270 billion investment over a decade to modernise the Australian Defence Force (ADF), with a focus on long-range strike capabilities, cyber warfare, and domestic production.
– 2021: AUKUS Pact – The trilateral security agreement with the U.S. and UK committed Australia to acquiring nuclear-powered submarines, but also included provisions for joint development of hypersonic missiles, quantum computing, and AI-driven defence systems.
– 2023: Defence Industry Development Strategy – The government identified critical sovereign capabilities that must be developed domestically, including guided weapons, electronic warfare systems, and unmanned aerial vehicles (UAVs).
Despite these efforts, Australia’s defence industry remains small and specialised, with limited capacity to produce large-scale platforms like fighter jets or submarines. This has led to a search for alternative suppliers, with India emerging as a viable partner for non-nuclear systems.
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Competing Claims and Uncertainty
While the Lowy Institute’s report presents a compelling case for Indo-Australian defence collaboration, several challenges and counterarguments remain:
# 1. Bureaucratic and Regulatory Hurdles
– India’s Defence Procurement Process: Despite reforms, India’s defence acquisition system remains slow and complex, with multiple layers of approval required for foreign collaborations. The Defence Acquisition Procedure (DAP) 2020 introduced provisions for strategic partnerships, but implementation has been inconsistent.
– Australia’s Export Controls: Australia’s Defence Trade Controls Act imposes strict regulations on the export of military technology, which could delay or derail joint projects. For example, Australia’s collaboration with the U.S. on hypersonic missiles has faced export control challenges, raising concerns about similar issues with India.
# 2. Geopolitical Sensitivities
– India’s Ties with Russia: India remains the largest importer of Russian arms, with 60% of its military equipment of Russian origin. This could create friction with Australia’s Western-aligned defence partnerships, particularly under AUKUS. While India has diversified its procurement in recent years, legacy Russian systems (like the S-400 air defence system) could pose interoperability issues with Australian forces.
– China’s Reaction: Beijing has criticised both India’s defence exports and Australia’s AUKUS pact as destabilising. Any deepening of Indo-Australian defence ties could provoke a response from China, potentially leading to economic coercion or military posturing in the Indo-Pacific.
# 3. Industrial and Technological Gaps
– India’s State-Dominated Defence Sector: While private firms like Tata and Adani are gaining ground, state-owned enterprises (SOEs) like HAL and Bharat Electronics Limited (BEL) still dominate key segments. These firms often lack the agility and innovation of private players, which could slow down joint projects.
– Australia’s Niche but Limited Capacity: Australia excels in electronic warfare, cybersecurity, and unmanned systems, but its defence industry lacks the scale to meet India’s demand for large platforms like fighter jets or submarines. This could limit the scope of collaboration to specific technologies rather than full-scale co-production.
# 4. Economic and Commercial Viability
– Cost Competitiveness: While India’s defence products are cheaper than Western alternatives, questions remain about their long-term reliability and performance. For example, India’s Tejas light combat aircraft has faced criticism over its engine and avionics, which could deter potential buyers.
– Market Access: Australia’s defence market is small and highly regulated, with preference given to domestic suppliers. Indian firms may struggle to compete with established Australian and U.S. companies for contracts.
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What to Watch Next
The coming months will be critical in determining whether Indo-Australian defence collaboration moves from rhetoric to reality. Key developments to monitor include:
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