Europe’s defence market opening up to Indian industry is a possibility: Let’s raise its probability

The twin fears of a potential Russian invasion and an American divorce have compelled Europe’s leaders to invest in military capacity, but it presents the EU and its member states with unprecedented structural challenges.

Europe sees a threat to the Union itself, but has to rely on the military establishments of its member-states to respond to it. Like the Pope, Brussels has practically no divisions under its command. Europe’s armed forces are maintained by individual nation-states and operate under Nato (read American) command. So defence policy, strategy, command, equipment, capacity and procurement are fragmented across the 27 EU states and the UK.

What Europe’s effective rearmament demands—fiscal capacity, a military-industrial base, an innovation ecosystem and a demographic base—is also geographically distributed. Countries that have the money don’t have enough people willing to fight and those with big industries don’t have enough startups. Moreover, Europe’s commitments to social spending and its climate transition work both as budgetary and cultural constraints to rapid rearmament.

Europe’s leaders got their first wake-up call during Donald Trump’s first term and the Russian invasion of Ukraine. In addition to supporting Kyiv with arms and money, they began thinking of European defence.

It was in 2025, after Trump’s return to power, that they got serious. Brussels fast-tracked a ReArm Europe package that would make €800 billion available for defence spending over the next five years and encouraged the European Investment Bank to expand lending to defence and security projects.

The ReArm package has two fiscal levers. The first is a National Escape Clause (NEC) that allows each member state to increase defence spending by 1.5% of GDP without violating fiscal rules, generating €650 billion for defence. The second, Security Action for Europe (SAFE), is essentially a debt instrument; Brussels uses its better credit rating to allow member-states to borrow up to €150 billion from capital markets for rapid procurement.

To discourage the favouring of national champions, SAFE rules require common procurement across two or more countries. To promote strategic autonomy, 65% of the procurement costs must flow to manufacturers in Europe. Partner countries like the UK, Canada, Norway, Japan—and potentially India after the recent signing of the Security and Defence Partnership (SDP) Agreement—can be suppliers. That said, purchase decisions remain in the hands of member-states.

Critics, foremost Bruegel, a European think-tank, point out that these initiatives are inadequate. It has proposed a more ambitious European Defence Mechanism (EDM), a treaty-based instrument that would create a single defence market among members, centralized procurement and collective ownership of defence assets, effectively setting the stage for a unified European military command. It is unclear when European politics will be ready for it.

For now, the NEC and SAFE initiatives are in focus. Even if they don’t offer Europe the desired strategic coherence, they have galvanized Europe’s defence industries. As I wrote in a previous column, this opens up a window of opportunity for India.

Today, India is actually rearming Europe’s best path to innovation, cost-reduction and economies of scale. At the margin, India’s startup ecosystem can provide Europe’s defence industries an additional route to innovation, partly making up for what it has lost in the US. Using global capability centres in India lets European firms focus resources on core military industrial activities. Unit costs of everything from ammunition to aircraft can fall if the Indian armed forces buy the same gear. The SDP, signed alongside the India-EU FTA last month, is a key to unlocking deeper defence industry ties.

New Delhi and Brussels should prioritize additional pacts that enable Indian firms to participate in Europe’s rearmament. The early harvest can come when, under SAFE, up to 35% of the procurement can be fulfilled by Indian subsidiaries or sub-contractors.

Europeans have legitimate concerns over India’s relations with Russia (just as Indians do over Europe’s relations with China). Geopolitical realities are what they are, but practical solutions can be found. One way out would be for New Delhi and Brussels to agree to an intellectual property, supply chain transparency and certification arrangement where Indian firms servicing European defence contracts are firewalled from the few that do business with Russia.

The defence partnership between India and the EU has become a two-way street and its traffic profile will change over time. Amid today’s tumult in world affairs, the potential opening of Europe’s defence market to Indian firms could serve both European and Indian quests for strategic autonomy.

The author is co-founder and director of The Takshashila Institution, an independent centre for research and education in public policy.