The United States stands at a moment of strategic reckoning. Its military-industrial base—once the envy of the world—is now under serious strain. Costs are rising, suppliers are vanishing, and the defense workforce is aging faster than it is being replenished. The challenge now is not just what can the United States build, but how quickly and affordably it can build things—and with whom. This is where India matters. This is not merely a case of shared values, but of shared capacity and complementary strengths. India offers what the United States needs: scale, talent, and tested experience. It is one of the few countries with contemporary combat experience against China and Chinese-platforms operated by Pakistan. It is also a growing defense producer with embedded roles in major U.S. platforms. And it brings to the table an entire ecosystem of engineers, suppliers, extensive ties to emerging and developing economies, and increasingly, global exporters—positioning it as a core partner in any strategy to sustain U.S. defense preeminence.
I. America’s Defense Bottlenecks: Cost, Talent, Fragility
Spiraling Costs and Shrinking Vendor Base
America’s defense-industrial base is contracting. Over 16,000 companies exited the U.S. defense sector between 2018 and 2023, reducing the pool of suppliers. While there are many new entrants, they do not keep pace with the exits. In critical areas like solid rocket motors, microelectronics, and shipbuilding components, the Department of Defense now relies on just one or two suppliers—creating chokepoints. Meanwhile, the cost of advanced weapon systems continues to surge. For example, the F-35A, America’s flagship stealth fighter, has seen its sustainment cost estimates increase by 44 percent from $1.1 trillion in 2018 to $1.58 trillion in 2023.
What’s more troubling is that the same systems are costing more over time—even after adjusting for inflation. A 2021 report by the Congressional Budget Office found that the Department of Defense's average annual procurement costs from 2025 to 2029 are projected to be nine percent higher than during 2015 to 2019—even after inflation adjustment. Separately, the Institute for Defense Analyses has shown that real cost growth in defense acquisition is often driven by structural factors—such as rising input costs and fragmented industrial capacity—rather than improved performance or capability. These trends point to a deeper vulnerability: the United States is paying significantly more to maintain a less resilient industrial base.
Overreliance on Chinese-Origin Components
The United States remains reliant on Chinese-origin materials and components in its defense supply chain. A 2018 Department of Commerce report found that ten Chinese firms were identified as critical suppliers to the U.S. rocket propulsion supply chain, and two were critical to the sustainment of the C-17 aircraft. Rare earth elements—essential for everything from guided missiles to radars—are still 74 percent sourced from China as of 2023. Even non-strategic components, such as electronic subassemblies, often trace their origin back to Chinese vendors.
STEM Shortages
The United States is also facing a shortage in its science, technology, engineering, and mathematics (STEM) workforce. Projections suggest that by 2025, as many as 3.5 million STEM jobs may need to be filled, with potentially two million going unfilled due to a persistent skills gap. This shortfall is worse in the defense sector. According to the Vital Signs 2024 report, 55 percent of defense contractors reported difficulty in hiring STEM talent, while 59 percent cited challenges in finding cleared or skilled trade workers. Without sufficient domestic STEM capacity, the U.S. risks falling behind in fielding and sustaining the advanced systems required to deter peer adversaries.
The Third Offset: Right Ideas, Limited Scaling Without Partners
The Third Offset strategy was the Pentagon’s answer to China’s growing military-technological edge. Just as the United States offset earlier threats — nuclear deterrence in the 1950s, and stealth and precision in the 1970s–80s — the Third Offset sought to restore U.S. dominance (in the face of China’s rising military and technological capabilities) through emerging technologies like AI, autonomy, human-machine teaming, quantum sensing, and more. It aimed to leverage the U.S. private sector’s innovation engine and deepen collaboration with allies and partners to expand and sustain the defense innovation base.
India is uniquely positioned to help realize this vision. With cost-effective scale, dual-use software talent, and frontline operational experience, India offers the capabilities the Third Offset intimately envisioned and needs to transition solutions from prototype to platform. Recent initiatives like the U.S.–India Initiative on Critical and Emerging Technology (iCET) and INDUS-X lay the groundwork for this collaboration. However, for ideas like the Third Offset to succeed, the United States must treat India as a strategic co-driver that is essential to scaling innovation and deterring adversaries across the Indo-Pacific.
II. Why India: Scale Meets Trust
India offers what the U.S. defense sector critically needs: trusted scale. In an era where cost, talent, and resilience are becoming decisive enablers of military power, India’s unique structural advantages—democratic alignment, human capital, engineering depth, and growing defense production capacity—position it as a natural partner to help sustain America’s military-technological edge.
As the world’s largest democracy and a frontline state facing sustained pressure from China, India shares long-term strategic objectives with the United States. These include preserving a free and open Indo-Pacific and deterring Chinese assertiveness. This alignment has been formalized through foundational defense agreements like the Logistics Exchange Memorandum of Agreement, Communications Compatibility and Security Agreement, Industrial Security Agreement, Basic Exchange and Cooperation Agreement (for Geospatial Intelligence); as well as India’s designation as a Major Defense Partner.
India’s engineering and technological workforce is unmatched among U.S. partners. The country produces over 1.5 million engineers annually and is home to some of the world’s largest software and engineering services firms. The wage differential can allow India to offer high-volume, high-skill defense services at a fraction of the cost. This is particularly valuable as defense platforms become increasingly software-defined, requiring rapid iteration, agile coding, and complex systems integration.
Besides defense services, India’s cost advantage is also present in manufacturing and across the labor spectrum. Further, this isn’t a future potential—it’s already happening. Indian firms are increasingly getting embedded in the global supply chains of major U.S. defense platforms. Tata manufactures over 90 percent of Apache helicopter fuselages exported globally. Lockheed Martin’s C-130J Super Hercules components are also assembled in India.
India’s defense manufacturing ecosystem is also maturing into a credible export engine. The sector only opened to private players in 2001, and significant liberalization began after 2016 with clearer policies on foreign direct investment, defense procurement, and export licensing. Since then, growth has been dramatic as India’s defense exports rose from $92 million in financial year (FY) 2013–14 to a record $2.63 billion in FY2023–24, marking a more than 30-fold increase over a decade.
This growth is being driven largely by the private sector, which accounts for around 60 percent of total defense exports, with the remainder coming from public-sector enterprises. Indian firms are now exporting systems ranging from artillery and radars to missile components and drones. Surprisingly, the United States has emerged as the largest destination, accounting for approximately 34 percent of India’s outbound defense trade—underscoring the deepening industrial and strategic convergence between the two countries.
III. Operational Relevance: Not Just a Factory, But a Frontline Player
Unlike any other U.S. ally or partner, India has direct, contemporary combat experience against the People’s Liberation Army (PLA). No other country has engaged the PLA in live, sustained hostilities since the China-Vietnam naval clashes in the 1980s. India, by contrast, has weathered multiple face-offs with Chinese forces in recent years—from the 2017 Doklam standoff to the brutal hand-to-hand combat witnessed in Galwan Valley in 2020. These were not simulations or exercises, but challenging deployments in some of the world’s toughest terrains.
This gives India a unique operational edge. Along the Indo-Tibetan frontier, Indian forces have built real-world expertise in countering China’s Anti-Access/Area Denial (A2/AD) systems, sustaining surveillance in high-altitude regions, and mobilizing rapidly in low-oxygen, high-conflict zones. For the United States, India brings lived experience, not just theoretical preparedness.
But war is no longer just a contest of terrain and firepower. It is increasingly a contest of code – and here too, India has much to offer. Modern military-industrial strategy is being reshaped by software. From autonomous systems and AI-assisted targeting to predictive maintenance and encrypted battlefield communications, software now undergirds strategic advantage. Here, India offers more than cost arbitrage. It offers capacity, agility, and a track record of trusted software delivery at scale. Just as Indian firms became integral to the global IT and pharmaceutical industries—combining affordability, intellectual property compliance, and workforce scale—they are now extending that model into defense tech. High-tech defense startups like 3rditech and Sagar Defence are already becoming key partners to global defense “primes” like General Atomic and Liquid Robotics.
Together, the United States and India have the potential to offer trusted, affordable alternatives in defense systems to a world increasingly wary of over-dependence on China. This is especially true in markets where price sensitivity is high or where U.S. export controls—such as ITAR restrictions—limit the scope of direct engagement. In regions like Southeast Asia, Africa, and parts of the Middle East, U.S.-India co-produced or co-designed solutions can provide the capability edge partners need—without forcing them into a binary choice between low-cost Chinese platforms and high-cost Western systems.
IV. Getting Serious: A U.S.–India Defense Playbook
The strategic window for action is narrowing. China is not merely modernizing its military—it is exporting its defense-industrial model. From armed drones in Ethiopia to surveillance systems in Myanmar, Beijing is increasingly setting the standard for affordable, integrated military capabilities in emerging and developing economies. Meanwhile, platforms built around BeiDou satellite navigation and AI-enabled systems are being fielded across contested theaters and authoritarian regimes alike.
Unless the United States acts decisively, it risks its remaining market position to a vertically integrated, state-backed competitor. This is not a contest the United States can win alone but by building enduring, industrial, and operational integration with partners who bring both scale and alignment. To realize that potential, both governments must pursue a strategic agenda like the one outlined below.
1. Co-Develop Exportable, non-ITAR, High-Impact Systems
India and the United States must focus on jointly developing systems that are not only relevant for bilateral needs, but viable for global export—particularly to third countries where Chinese systems are gaining ground. These include intelligence, surveillance, and reconnaissance (ISR) platforms, AI-driven battlefield tools, autonomous vehicles (both surface and undersea), predictive logistics software, and secure communications systems. Many of these technologies are being commercially developed and do not have export control restrictions like ITAR—meaning they are not subject to the U.S. International Traffic in Arms Regulations (ITAR)—allowing for faster development and more flexible export options.
The goal should not be proof-of-concept. It should be co-production at scale, with third-country operators in mind from the start. With the right interoperability and export financing framework, U.S.-India solutions can meet demand in Southeast Asia, Africa, and Central Asia—regions where strategic competition is playing out in procurement pipelines, not just diplomatic corridors. The truth is, while China often offers a compelling product, capitals in the developing world want choices.
2. Launch a Joint Prototyping Accelerator and Innovation Fund
Beyond any single technology category, the United States and India need a joint mechanism to iterate fast and fund early. A U.S.–India Prototyping Accelerator should be established to rapidly test, refine, and operationalize capabilities across air, land, sea, space, and cyberspace domains—especially those that require software-defined performance and cross-domain integration.
This center should be co-located (potentially in Bengaluru and Honolulu), staffed with defense engineers, acquisition leads, and military end-users from both sides, and governed by the philosophy of operational agility. Separately, a joint innovation fund should be seeded by both governments and supported by commercial capital—providing the patient and risk-tolerant funding necessary to get beyond demos and into deployment.
3. Fast-Track Operational Integration Through OTAs and Policy Streamlining
While both the countries work towards a Reciprocal Defense Procurement (RDP), which would grant mutual access to each other’s defense procurement systems—there are faster ways to operationalize collaboration. One such tool is the Other Transaction Authority (OTA) framework, which allows the U.S. Department of Defense to prototype and field capabilities outside traditional acquisition rules. OTAs have been championed by President Trump whose April 2025 Executive Order directs a “first preference” for commercial solutions and a general preference for OTA contracts “to promote streamlined acquisitions”. They have also been supported by Secretary of Defense Pete Hegseth, who in a March 2025 memo mandated OTAs as the “default solicitation method” under the software acquisition pathway.
OTAs can also ideal for working with Indian startups and mid-tier defense firms that lack legacy program access through conventional procurement methods but offer fresh capabilities. Hence, Washington and New Delhi should institutionalize OTA pathways for bilateral projects, while accelerating complementary reforms: harmonizing security clearance frameworks, launching more joint challenges, and ensuring real R&D integration through President Trump’s recently launched mechanisms and initiatives like TRUST, COMPACT, and ASIA. The goal should be field-ready systems—tested together, governed together, and deployable together.
4. Establish a Mentor–Protégé Pathway for Industrial Co-Production
To build true industrial resilience, the United States must go beyond supplier diversification and deliberately integrate Indian industry into its defense supply chain. The model already exists: the Mentor–Protégé Program, which pairs experienced primes with emerging suppliers to build production capacity, compliance readiness, and secure certification.
This model should be adapted for India. U.S. primes should be incentivized to mentor Indian firms—particularly in critical areas like secure microelectronics, propulsion, advanced materials, and aerospace subcomponents. These relationships would not just reduce risk—they would embed interoperability and build trust from the factory floor to the forward edge.
India’s defense industrial base is real—but operationalizing it at scale requires continued structural reforms. Delays in procurement cycles, complex export procedures, inadequate intellectual property protections, slow judicial recourse, and limitations in testing infrastructure remain barriers. While the sector has grown and reformed, consistency in implementation and deeper engagement with the private sector will be essential. Importantly, India must improve capital access for its defense startups. These are not insurmountable challenges but ignoring them would constrain the very potential the United States desperately needs India to develop and partner with.
This is not about symbolic gestures or bureaucratic exchanges. It is a strategic imperative. The contest with China will not be won through ideas alone—it will be won by how fast, how affordably, and how broadly those ideas can be converted into deployable power. India brings operational experience, potential manufacturing scale, and growing global credibility. The U.S. brings cutting-edge innovation and strategic coordination. Together, they can offer something neither can alone: trusted, export-ready capability at pace.
India is not just a promising partner—it is a necessary one. The United States cannot outpace China’s military-industrial surge with innovation alone. It needs scale, speed, and trusted capacity across domains. That means integrating India not at the margins, but at the core of U.S. defense strategy. The foundations are already in place. What’s needed now is institutional resolve—to move from cooperation to co-production, from alignment to action.
