EXECUTIVE SUMMARY
The Indian defence manufacturing industry is characterised by a strategic partnership between the government and the private sector. Locally produced defence goods witnessed the highest ever value of Rs. 1,77,995 crore (US$ 20.14 billion) in FY26 due to a growth of 15% compared to FY25. Similarly, the highest ever value of defence goods exports was recorded at Rs. 38,424 crore (US$ 4.35 billion). The projection for the value of defence manufacturing stands at Rs. 3,00,000 crore (US$ 34.70 billion) by FY29, buoyed by the largest ever ministry budget allocation in the Union Budget FY27 amounting to Rs. 7,84,678 crore (US$ 88.70 billion).
Defence Production (FY26)
US$ 20.14 billion
Defence Exports (FY26)
US$ 4.35 billion
Production Target (FY29)
US$ 34.70 billion
Private Sector Share (FY26)
24%
Introduction
The Indian defence industry consists of a strategic relationship between the government and the defence manufacturing industry, which includes DPSUs, Ordnance Factories, and the growing private sector. By March 2026, there were 834 licenses regulating the defense industry where about 500 defense firms and around 17,000 MSMEs had license for defense production. India has witnessed considerable growth in defence goods export from Rs. 686 crore (US$ 113.39 million) in FY14 to an all-time high of Rs. 38,424 crore (US$ 4.35 billion) in FY26. In FY26, while private sector entities accounted for Rs. 17,353 crore (US$ 1.96 billion) (45.16% of the country's defence exports), DPSUs accounted for Rs. 21,071 crore (US$ 2.38 billion) (54.84%).
Technological development and self-sufficiency still play a vital role in India's defence policy. As per a research conducted by the Stockholm International Peace Research Institute (SIPRI), India is fourth on the list of 12 Indo-Pacific countries based on self-reliant armament manufacturing capacity. So far, five Positive Indigenisation Lists pertaining to 5,012 defence equipment of DPSUs have been issued, whereas the SRIJAN website has helped indigenise more than 15,700 defence items, out of which 3,204 items belong to Positive Indigenisation Lists as of May 2026.
The amount of money invested in research and development for defence went up from Rs. 13,716 crore (US$ 2.24 billion) in FY15 to Rs. 29,100 crore (US$ 3.08 billion) in FY27, indicating a persistent effort from the government to foster innovations in domestic defence. India's defence industry is a significant player in the international business scene, with a pipeline of more than US$ 223 billion in aerospace and defence capex for ten years and an investment expected to reach US$ 130 billion in the medium term. The maximum limit of FDI under the automatic route in the defence manufacturing sector has increased from 49% to 74%.
MARKET SIZE AND GROWTH
- India's indigenous defence production reached a record Rs. 1,77,995 crore (US$ 20.14 billion) in FY26, nearly four times higher than Rs. 46,429 crore (US$ 7.59 billion) in FY15.
- The government has set a target of Rs. 3,00,000 crore (US$ 34.70 billion) in defence production by FY29.
- Defence exports rose from Rs. 686 crore (US$ 113.39 million) in FY14 to Rs. 38,424 crore (US$ 4.35 billion) in FY26, with a target of Rs. 50,000 crore (US$ 5.63 billion) in exports by FY29.
- The domestic defence market is projected to expand to Rs. 10,00,000 crore (US$ 122 billion) over the next 20 years, with Goldman Sachs projecting 32% annual EPS growth for private defence firms between FY25-FY28.
KEY SEGMENTS
The production of defence equipment in India has two components - one from the private and other from the public sector. In FY26, the production worth was shared between DPSUs and Ordnance Factories at 76%, while the rest 24% came from the private firms. The share of the private sector is bound to grow further.
INVESTMENTS AND FDI
- Foreign direct investment equity inflow in the defence industry was US$ 32.29 million from April 2000 to June 2026, considering the historically tight restrictions on FDI in this sector.
- FDI in the defence industry can now be made up to 74% via the automatic route (earlier 49%) for firms which intend to get fresh industrial licenses. FDI above 74% but not exceeding 100% can be made through the government route.
- In the budget for 2026-27, Rs. 1.39 lakh crore (US$ 16.70 billion) has been allocated towards purchase from India's defence industry.
- Paras Defence and Space Technologies plans to invest Rs. 12,000 crore (US$ 1.39 billion) to establish India's first Optics Park in Maharashtra.
- JSW Defence is investing Rs. 800 crore (US$ 92.40 million) in Telangana for drone manufacturing.
GOVERNMENT INITIATIVES
- Defence Production and Export Promotion Policy 2020
- Innovations for Defence Excellence (iDEX)
- SRIJAN Portal (Positive Indigenisation Lists)
- Aatmanirbhar Bharat Initiative
- Defence Acquisition Procedure (DAP-2026)
- ADITI Scheme (Acing Development of Innovative Technologies with iDEX)
- Make in India
- Defence Industrial Corridors (Uttar Pradesh and Tamil Nadu)
DRIVERS AND OPPORTUNITIES
- Policy backing - Easy procurement processes as a result of DAP-2026 and conducive environment for Foreign Direct Investment (FDI) are promoting private sector involvement.
- Growth in demand - There is always concern about territorial security and also to be technologically on par with other countries.
- Support from the government - The defence budget is projected to be 2.00% of the GDP in FY27.
- Opportunity in the market - The total addressable market (TAM) of domestic defence for the next 20 years is estimated to grow to Rs. 10,00,000 crore (US$ 122 billion).
STRATEGIES
- Strategic partnerships - Contracts to the tune of Rs. 975 crore (US$ 103.30 million) have been signed by the Ministry of Defence with BEML and Electro Pneumatics and Hydraulics for TRAWL Assemblies under the Aatmanirbhar Bharat initiative.
- Procurement of military hardware and software - DRDO revealed indigenous armoured platforms designed in partnership with Tata Advanced Systems and Bharat Forge, with an indigenous content of 65%.
- Defence manufacturing innovation - The DRDO allocation grew from Rs. 26,816.82 crore (US$ 3.10 billion) to Rs. 29,100.25 crore (US$ 3.30 billion) in FY27.
- Digital Technologies - ADITI programme and SRIJAN portal are helping in promoting indigenous development, while the SRIJAN portal has facilitated over 15,700 defence products to date.
M&A
- In August 2026, Hindustan Aeronautics Limited (HAL) collaborated with Adani Defence Systems and Technologies along with Bharat Earth Movers Limited (BEML) for the production of 156 LCH Prachand helicopter fuselage structures.
- HAL signed a long-term agreement with Safran Aircraft Engines to manufacture superalloy turbine ring forgings for CFM LEAP engines at its Bengaluru facility in July 2026.
- Bharat Electronics Limited (BEL) entered into an MoU with Ananth Technologies for the development and production of high-end electronics for missiles, radars, and satellites in August 2026.
TRENDS
- Self-reliance push - As on August 2026, there are five positive indigenisation lists containing more than 5,400 items. The SRIJAN Portal supports indigenisation of more than 15,700 defence items.
- Rise of defence start-ups - The amount invested in military-technology start-ups has gone up 61-fold, from Rs. 27 crore (US$ 3.10 million) in 2016 to Rs. 1,653 crore (US$ 192.40 million) in 2025, involving more than 676 start-ups through iDEX.
- AI in defence - 75 new AI innovations were introduced at the Ministry of Defence's inaugural “AI in Defence” event.
- Reforms of GST 2.0 - GST rate for commercial drones has been reduced to 5%, while that for military drones has been completely scrapped.
- Increasing exports - Defence exports have risen by almost 63% in one year itself from Rs. 23,622 crore (US$ 2.73 billion) in FY25 to Rs. 38,424 crore (US$ 4.35 billion) in FY26 and have reached out to more than 80 countries.
- Space-based surveillance - India intends to launch 52 satellites by 2030 in order to improve surveillance for Army, Navy, and Air Force.
RECENT DEVELOPMENTS
- August 19, 2026 : Bharat Electronics signed an MoU with Ananth Technologies to jointly develop missiles, radars, and satellite systems
- August 14, 2026 : HAL partnered with Adani Defence Systems and BEML to manufacture LCH Prachand helicopter fuselage structures
- July 22, 2026 : HAL signed a long-term agreement with Safran Aircraft Engines for CFM LEAP engine turbine ring forgings
- June 15, 2026 : DRDO successfully flight-tested the indigenous Long Range Land Attack Cruise Missile (LRLACM) from Odisha
- January 12, 2026 : Astra Microwave Products won a US$ 33 million contract for MiG-29 avionics upgrades
- January 8, 2026 : Zen Technologies secured a US$ 49 million order for counter-drone systems and military training simulators
FAQs
National security issues, along with continuous investment by the government, have helped indigenous defence production reach a new high of Rs. 1,77,995 crore (US$ 20.14 billion) during FY26, up 15% year-on-year.
Production takes place in the public and private sector. In FY26, DPSUs and Ordnance Factories have contributed 76% in production whereas private firms have provided 24% contribution.
Important initiatives are Defence Production and Export Promotion Policy 2020, Innovations for Defence Excellence (iDEX), SRIJAN portal, and the Aatmanirbhar Bharat initiative.
The Make in India campaign has been responsible for the process of indigenisation through the Positive Indigenisation Lists, which consist of more than 5,400 products.
Areas include drone manufacturing, optics and electronics, and shipbuilding, which will be enabled by FDI liberalisation up to 74% through automatic route and Rs. 1.39 lakh crore (US$ 16.00 billion) allocation from Budget 2026-27 for domestic purchases.
The share of private sector in India's defence production was 24% while the contribution to defence export was 45.16%.
Export of defence was increased from Rs. 686 crore (US$ 113.39 million) in FY14 to an all-time high of Rs. 38,424 crore (US$ 4.35 billion) in FY26 with an aim to reach Rs. 50,000 crore (US$ 5.63 billion) by FY29.
The country is planning to achieve Rs. 3,00,000 crore (US$ 34.70 billion) in domestic production and Rs. 50,000 crore (US$ 5.63 billion) in exports by FY29, thanks to indigenisation and expansion of the private sector.
Related News
MOREDefence Clusters
- Karnataka
- Andhra Pradesh
- Madhya Pradesh
- Chhattisgarh
Posters
MORE
STRONG ARSENAL
The Indian defence manufacturing industry is a significant sector for the economy. The industry is likely to accelerate with rising concerns of national security.
IBEF Campaigns
MORE
Case Studies
MOREContainerisation: Transforming India's Maritime Trade
Despite other modes of transportation, the maritime shipping mode is the backbone of international trade. The concept of containerisation has revoluti...
India’s Growing Senior Care Needs: New Businesses and Services
The current state of India is characterised by the process of demographic transition with gradual growth of the proportion of senior citizens within t...
The Rise of India's Pathology Laboratories: Strengthening Quality and Safety in Healthcare
India has seen its healthcare system witness an impressive evolution in the last two decades because of the growth in healthcare infrastructure, incre...
IBEF BLOG
MORE
India's Blue Economy: Untapped Potential in Ports, Fisheries and Ocean Resources
The maritime space of India, which comprises the coastline, island areas, a...
How Technology Is Making Waste Management More Efficient in Indian Cities
Indian cities are adopting digital monitoring, sensors, and automated waste...
India's Cold Chain Logistics: The Backbone of Perishable Trade
India's cold chain network allows the transfer of perishables from farm...
Partners
