Indian Defence Manufacturing Industry Analysis

The Indian defence ecosystem represents a strategic collaboration between the government and the defence manufacturing industry. Over the past decade, India’s defence exports have witnessed remarkable growth, rising from Rs. 686 crore (US$ 81.1 million) in FY14 to Rs. 23,622 crore (US$ 2.76 billion) in FY25. Private sector contributions reached Rs. 15,233 crore (US$ 1.80 billion), while Defence Public Sector Undertakings (DPSUs) accounted for Rs. 8,389 crore (US$ 992.2 million). In FY26 (April-September 2025), defence exports have already reached Rs. 9,131 crore (US$ 1.07 billion), marking a continued upward trajectory.

The Union Budget for FY27 envisaged an outlay of Rs. 7,84,678 crore (US$ 88.7 billion). The allocation towards the Defence Ministry is the highest across all ministries and accounts for 14.7% of the total expenditure of the central government.

India is also advancing indigenous defence manufacturing capabilities. The Indian Coast Guard (ICG) and Jindal Steel & Power (JSP) signed a Memorandum of Understanding to supply indigenous marine-grade steel for shipbuilding. The budgetary allocation to the Defence Research and Development Organisation (DRDO) has been increased from Rs. 26,816.82 crore (US$ 3.1 billion) in FY 2025–26 to Rs. 29,100.25 crore (US$ 3.3 billion) in FY 2026–27. The value of defence production in the country for 2025-26 till December 2025 stood at Rs. 1,09,556 crore (US$ 12.39 billion). The government targets defence manufacturing worth Rs. 3,00,000 crore (US$ 34.7 billion) by FY29.

Technological advancement and innovation remain central to India’s defence strategy. By February 2025, 549 problem statements had been opened under the iDEX initiative, involving 619 startups and MSMEs, resulting in 430 contracts. India plans to deploy a constellation of 52 satellites by 2030 to enhance space-based surveillance for the Army, Navy, and Air Force, improving enemy tracking, border monitoring, and real-time operational coordination.

International collaboration is also strengthening India’s defence ecosystem. Under the India-United States Defence Acceleration Ecosystem (INDUS-X), Indian and American startups can co-develop advanced technologies, including in space and artificial intelligence. In February 2025, India secured a Rs. 3,800 crore (US$ 440.3 million) deal to export BrahMos missiles to Indonesia, highlighting the country’s advanced defence manufacturing capabilities, which include domestic production of aircraft carriers.

Funding for India’s military-tech start-ups has risen 61 times from Rs. 27 crore (US$ 3.1 million) in 2016 to Rs. 1,653 crore (US$ 192.4 million) in 2025, with total investments reaching Rs. 5,248 crore (US$ 611 million) across 211 rounds since 2016.

The cumulative FDI equity inflow in the Defence industry is Rs. 207 crores (US$ 27.78) million during the period April 2000-December 2025.

Notable trends in the defence manufacturing sector

• As of February 2026, approximately 676 start-ups, MSMEs, and individual innovators have joined the defence innovation ecosystem since the inception of iDEX in 2018. 548 contracts have been signed, and 566 challenges launched. Of these, 58 prototypes have received clearance for procurement, valued at around Rs 3,853 crore. Furthermore, 45 procurement contracts have already been signed, worth nearly Rs 2,326 crore
• In February 2026, India significantly boosted its defence industrial corridors in Uttar Pradesh (UPDIC) and Tamil Nadu (TNDIC) to foster "Aatmanirbhar Bharat". Key developments include expanding the UPDIC beyond six nodes to accommodate surge investments and implementing PIB and Make in India initiatives, driving manufacturing in drones, missiles, and aerospace to create a global defense export hub.
• DRDO has developed a pool of 2,000 industries to manufacture sub-systems, systems and equipment. The technology of DRDO developed systems are transferred to Indian Industries at zero ToT fee for Development cum Production Partner (DcPP)/ Production Agency (PA)/ Development Partner (DP). Consultancy Services of DRDO Scientists to industry is made available. The policy for free area of DRDO Patents by Indian Industries has been implemented.
• On 30 December 2025, the Ministry of Defence signed contracts worth US$ 518 million (Rs. 4,666 crore) for procurement of advanced infantry weapons and heavyweight torpedoes, aimed at strengthening indigenous manufacturing and enhancing combat readiness.
• On 30 December 2025, Adani Defence & Aerospace, through its subsidiary PLR Systems, secured a major contract to supply over 170,000 carbines to the Indian Armed Forces, marking one of the largest private-sector small arms manufacturing orders in India.
• On 20 January 2026, Axiscades Technologies secured a defence electronics order worth US$ 12 million (Rs. 100 crore) linked to radar systems, highlighting increasing participation of private firms in high-technology defence manufacturing.
• On 12 January 2026, Astra Microwave Products (in collaboration with DRDO) won a contract worth US$ 33 million (Rs. 275 crore) for avionics upgrades of the Indian Air Force’s MiG-29 fleet, supporting domestic electronics manufacturing capabilities.
• On 08 January 2026, Zen Technologies secured an order worth US$ 49 million (Rs. 404 crore) from the Ministry of Defence for counter-drone systems and advanced military training simulators, reinforcing India’s push toward indigenous defence technologies.
• Crisil Ratings said India’s private defence firms are expected to grow revenues by 16-18% in FY26, after posting a ~20% compound annual growth rate between FY22 and FY25.
• Goldman Sachs expects India’s private defence firms to deliver 32% annual EPS growth between FY25 and FY28, driven by rising exports and indigenisation. The domestic market is projected to expand to Rs. 10,00,000 crore (US$ 122 billion) over the next 20 years.
• The value of defence production in the country for 2024-25 stood at Rs. 1,50,590 crore (US$ 17.57 billion) while new defence public sector undertakings stood at Rs. 21,821 crore (US$ 2.55 billion).
• The Department of Defence Production granted 1,762 export authorisations in 2024-25, a 16.92% rise from 1,507 in 2023-24, while the count of exporters grew 17.4% over the same period.
• Aero India 2025, held from February 10-14, 2025, at Yelahanka Air Force Station in Bengaluru, featured India’s commitment to indigenous defense manufacturing, with events like the Defence Ministers’ Conclave, CEOs’ Roundtable, and iDEX start-up showcase.
• Defence Exhibition Organisation (DEO) under the Ministry of Defence anchors India’s two mega events, DefExpo and Aero India, providing institutional support and international outreach for defence trade fairs and delegations.
• India and the Philippines elevated their bilateral relations to a strategic partnership on August 5, 2025, focusing on defence cooperation, including the Philippines' acquisition of the BrahMos missile system from India.
• India’s GST 2.0 is set to modernise defence procurement, slashing GST on commercial drones to 5% and fully abolishing it on military drones and critical defence equipment like aircraft, missiles, simulators, batteries, underwater systems and software‐defined radios, boosting military readiness, cost efficiency and indigenisation in defence supply chains.
• Bharat Electronics Limited (BEL) and Israel Aerospace Industries (IAI), Israel's leading aerospace and defence company, have announced the establishment of a joint venture company (JVC). The JVC has been set up for providing life cycle support, both technical and maintenance related, for MRSAM air-defence systems of the country.
• Rolls-Royce intends to significantly increase its supply chain sourcing from India over the next five years, with a particular emphasis on complex aerospace and defense components.
• TechEagle plans to invest Rs. 100 crore (US$ 11.6 million) over the next three years from 2025 to address the growing demand for drones in public safety. The company has recently introduced an autonomous UAV specifically designed for disaster relief and law enforcement, highlighting its advanced domestic engineering capabilities, and has secured a contract with the Himachal government.
• JSW Defence is set to invest Rs. 800 crore (US$ 92.4 million) in Telangana for drone manufacturing. The company has signed a Memorandum of Understanding (MoU) with the Telangana State government to facilitate this initiative.
• Paras Defence & Space Technologies plans to invest Rs. 12,000 crore (US$ 1.39 billion) to establish India’s first Optics Park in Maharashtra, with the project expected to roll out in phases from 2028 to 2035 to ensure scalability and flexibility.
• Under the Atmanirbhar Bharat Initiative, five positive indigenization lists of 509 products have been promulgated by the Department of Military Affairs and Ministry of Defence to be manufactured domestically for the defence sector, instead of being sourced via imports.
• In a major boost to Aatmanirbharta in defence & minimise imports by Defence Public Sector Undertakings (DPSUs), Department of Defence Production (DDP), Ministry of Defence has notified the fifth Positive Indigenisation List (PIL) consisting of 346 items. These include strategically-important Line Replacement Units/Systems/ Sub-systems/Assemblies/Sub-assemblies/Spares & Components a raw materials, with import substitution value worth Rs. 1,048 crore (US$ 126.57 million).
• The government has established two Defence Industrial Corridors in Uttar Pradesh and Tamil Nadu.
• The Indian defence sector is one of the world’s largest and most profitable industries, with a 10-year pipeline of over US$ 223 billion in aerospace and defence capital expenditure and a projected medium-term investment of US$ 130 billion.
• Among the large defence programs expected to be shifted to “Buy Global - Manufacture in India” are 114 multirole fighter aircraft (MRFA), with a gradual increase in domestic production.
• The FDI maximum in defence manufacturing under the automatic route has been raised from 49% to 74% (for new investments requiring an industrial licence), allowing foreign firms to establish manufacturing units with a greater degree of ownership and control.
• India ranks fourth among 12 Indo-Pacific nations in self-reliant arms production capabilities, according to a study released this month by the Stockholm International Peace Research Institute (SIPRI).
• Under the ‘Aatmanirbhar Bharat’ campaign, the Indian Aerospace and Defence sector has been identified as one of the key focus areas. There have been various policy changes signalling the end of an era of import dependence and aim to promote India as the most preferred global manufacturing destination for foreign OEMs/Tier-1 vendors.
• To achieve the desired growth, the two main cornerstones will be indigenization and self-reliance in defence manufacturing.
• Recognising the crucial role of Research, Innovation and Technological development towards capacity building of the Armed Forces as well as fuelling India’s Mission of Aatmanirbharta.
• An allocation of US$ 7.2 million (Rs. 60 crore) was announced for the Technology Development Fund (TDF) scheme, specifically designed to support new startups, MSMEs, and academia engaged in defence-related innovation. This initiative seeks to attract young talent interested in niche technology development, fostering collaboration with DRDO.
• Multi-Purpose Vessels: The contract for procurement of two Multi-Purpose Vessels (MPVs) for the Indian Navy from M/s Larsen & Toubro Limited, Mumbai for a total cost of US$ 107 million (Rs. 887 crore) under the Buy (Indian) category was signed in March 2022.
• Fast Patrol Vessels: A contract for the construction of eight Fast Patrol vessels (FPVs) for Indian Coast Guard with M/s Goa Shipyard Limited (GSL), Goa at a total cost of US$ 57.6 million (Rs. 473.47 crore) under Buy (Indian) category was signed in March.
• The Indian defence manufacturing industry is a significant sector for the economy. Demand growth is likely to accelerate with rising concerns of national security. Growth was observed in the value of production by Defence PSUs due to numerous key product developments through research and development initiatives, in addition to various products and equipment being manufactured through transfer of technology.
• The defence manufacturing sector has seen some major developments, investments and support from the Government in the recent past.
• Under Mission Raksha Gyan Shakti, 2,389 Intellectual Property Rights (IPRs) (until February 2024) have been granted/registered by the Indian Patent Office.

India and Oman co-chaired the 12th Joint Military Cooperation Committee (JMCC) meeting in Muscat on January 31, 2024, reviewing and applauding the strong defence cooperation between both nations while exploring new avenues for collaboration in training, joint exercises, information sharing, oceanography, shipbuilding, and MRO to enhance mutual trust and interoperability between their militaries.

During his UK visit, Defence Minister, Mr. Rajnath Singh met with top UK defence industry leaders, on January 10, 2024. He discussed enhancing the India-UK defence relationship and welcomed UK investment and technology collaboration, highlighting India's skilled workforce and favourable investment climate.

The Union Cabinet has accorded approval to sign a contract with Larsen & Toubro Limited (L&T) for the acquisition of three Cadet Training Ships, at an overall cost of US$ 379.5 million (Rs. 3,108.09 crore), under Buy {Indian-IDDM (Indigenously Designed, Developed and Manufactured)} category. The delivery of ships is scheduled to commence from 2026.

The Startup Incubation and Innovation Centre, IIT-Kanpur (SIIC IIT-Kanpur) recently signed an MoU with the Defence Innovation Organisation (DIO) to nurture and support start-ups and SMEs in the defence sector through its flagship programme iDEX Prime.

The government has established two Defence Industrial Corridors (DICs) in the country, one in Uttar Pradesh called the Uttar Pradesh Defence Industrial Corridor (UPDIC) and the other in Tamil Nadu called the Tamil Nadu Defence Industrial Corridor (TNDIC), with the goal of attracting US$ 1.31 billion (Rs. 10,000 crore) in investment in each.

India is also developing high-altitude long-endurance unmanned aircraft for surveillance and reconnaissance applications.

The Indian government is focussing on innovative solutions to empower the country’s defence and security via ‘Innovations for Defence Excellence (iDEX)’, which has provided a platform for start-ups to connect to the defence establishments and develop new technologies/products in the next five years (2021-2026). The Defence Ministry has set a target of 70% self-reliance in weaponry by 2027, creating huge prospects for industry players.

India’s defence sector is witnessing a rapid transformation phase, driven by accelerated indigenisation, rising private-sector participation, and deeper global strategic partnerships. With record-high production and exports (crossing ₹38,000 crore in FY 2025–26), along with increased investments in startups, MSMEs, and advanced technologies such as drones, AI, and electronic warfare, India is steadily strengthening its self-reliance in critical defence capabilities. The expansion of Defence Industrial Corridors, higher domestic procurement, and key collaborations like aero-engine manufacturing are further enhancing industrial capacity and technological depth. Looking ahead, India is well-positioned to emerge as a global hub for defence manufacturing and exports, while reinforcing national security and expanding its strategic influence in the Indo-Pacific and beyond.