India’s defence industry set to reach Rs 3 lakh crore by FY29: CareEdge Ratings
Driven by higher government spending, rising indigenisation, private sector participation and robust defence exports, India’s defence industry is projected to grow from Rs 1.78 lakh crore in FY26 to Rs 3 lakh crore by FY29.
Increased government spending on defence has been a key focus area over the last few years. (AI Image)
Led by sustained growth, the Indian defence industry size is likely to increase from Rs 1.78 lakh crore in FY26 to Rs 3 lakh crore by FY29, growing at a CAGR of ~19% while maintaining Profit Before Interest, Lease Rentals, Depreciation and Taxation (PBILDT) margins of 20-22%. Such advancements are expected to further bolster domestic defence ecosystem and position India favourably on the global defence map, says CareEdge Ratings.
Buoyed by increased geopolitical tensions, evolution in nature of modern warfare and rapid technological advancements, India’ defence sector continues to remain on a growth trajectory.
Increased government spending on defence has been a key focus area over the last few years. The Union Budget for FY27 has allocated Rs 7.85 lakh crore to Ministry of Defence, up ~15% over FY26 (BE). Coupled with several policy thrusts such as liberalising FDI (up to 74% under automatic route), consistently updating positive indigenisation lists, focussing on export promotion measures to reach India’s ambitious defence export target, increasing spends on R&D, this has resulted in structural changes in the sector.
These initiatives aim to reduce import dependence and strengthen domestic manufacturing and export competitiveness.
Pritesh Rathi, Associate Director, CareEdge Ratings, said, “India’s defence sector is witnessing a structural transformation driven by rising indigenisation, higher capital outlay, and increasing private sector participation. With defence production targeted to reach Rs 3 lakh crore by FY29 and a strong focus on domestic procurement, the sector is expected to maintain healthy growth momentum over the medium term. Improving execution capabilities, expanding manufacturing capacity, and sustained policy support are likely to strengthen India’s position in the global defence ecosystem”.
CareEdge Ratings observes that India’s defence import reliance has reduced with increased domestic production capacity over time, as building domestic capabilities to manufacture defence equipment has become a key priority of India’s defence-industrial policy. However, India continues to rely on imports for critical high-end platforms. Russia will remain a major supplier for India but its share in total imports is expected to reduce (~40% during 2021–25) compared to the previous five years (~70% during 2011–15). However, New Delhi is also increasingly looking at France and Israel for procurement to reduce over-dependence on a single supplier and bring in high-end technology.
India has been the world’s second-largest arms importer over 2021–25 as well, accounting for ~8.2% of all imports due to security concerns. Imports were down by ~4% compared to the previous five years, showcasing India’s enhanced domestic manufacturing capacities, however India continues to import high-tech equipment such as fighter aircraft, submarines, etc., signifying persistent dependence even as domestic manufacturing has been boosted.
India’s Defence Exports: Gaining Strong Global Momentum
India’s defence exports gathered considerable traction in FY26 reaching Rs 38,424 crore registering an increase of 62.66% over the previous year. Contribution by DPSUs & the private sector stood at 54.84% and 45.16% respectively. With 145 defence exporters in FY26 (128 defence exporters in FY25), exports saw enhanced participation from the industry. This increase in defence exports has been attributed to greater acceptance of Indian defence products worldwide, deeper integration into global supply chains and increasing defence procurement by countries due to geopolitical conflicts and security concerns. India exports defence equipment to more than 80 countries. Top 3 countries are Myanmar, Philippines and Armenia during 2021-25.
Supported by policy initiatives such as ease-of-doing-business and simplification of defence export procedures coupled with focused thrust on indigenous manufacturing, defence exports are expected to receive further fillip. India targets Rs 50,000 crore defence exports by FY29 and Rs 2.8 lakh crore by 2047 (Viksit Bharat vision), solidifying its position as one of the key global defence exporters.
Pulkit Agarwal, Director, CareEdge Ratings, noted, “India’s defence exports have also scaled new highs, reaching Rs 38,424 crore in FY26, supported by growing global acceptance of indigenous defence products and increasing integration into international supply chains. Backed by favourable policy initiatives, rising geopolitical uncertainties, and continued investments towards technology and R&D, the sector is well positioned to enhance export competitiveness and support India’s long-term self-reliance objectives”.
CareEdge Ratings’ further notes that its analysis of old DPSUs, new DPSUs, and other PSUs/JVs collectively accounting for ~85-90% of all of their aggregate defence production in FY26 indicates a steady growth trajectory in total operating income (TOI). Profitability remains robust, with PBILDT margins projected at ~22% in FY27. Going forward, DPSUs are expected to play a critical role in reducing import dependence and supporting export growth, thereby enhancing India’s position in the global defence landscape.
