India’s defence industry is experiencing robust growth, driven by a synthesis of government initiatives, a growing domestic order book, and improving profitability among defence manufacturers. As the country advances its goals of self-reliance and global competitiveness in defence production, the sector is emerging as one of the top-performing segments in India’s economy.
Make in India Initiative Sparks Indigenous Manufacturing
Since the launch of the Make in India campaign, defence manufacturing has seen a transformative shift from import dependence to domestic production. The government’s focused policy interventions—such as easing Foreign Direct Investment (FDI) norms, offering incentives for private-sector participation, and earmarking capital for defence R&D—have empowered Indian manufacturers. This has led to remarkable innovations like the Light Combat Aircraft Tejas, Arjun Main Battle Tank, and Akash missile system, showcasing India’s growing technological capabilities.
Strong Government Budget and Procurement Pipeline
India’s defence budget has seen a sharp rise from ₹2.53 lakh crore in 2013-14 to over ₹6.81 lakh crore in FY 2025-26. This allocation fuels procurement of indigenously manufactured platforms and modernisation of armed forces. The Ministry of Defence has approved procurement plans amounting to over ₹1.05 lakh crore for FY2025, reinforcing a strong order book for defence manufacturers in both public and private sectors. This healthy order pipeline ensures sustained revenue visibility and confidence in the sector.
Robust Financial Performance and Margins
Defence companies, particularly the Defence Public Sector Undertakings (DPSUs) and leading private players, have reported impressive financial results. Sectoral index returns averaged nearly 35% in 2025, vastly outperforming broader market indices. Margins have improved as companies move up the value chain from producing assemblies to complete system-level products. EBITDA margins are expected to remain healthy at 25-27% for FY26, supported by economies of scale and localisation efforts.
Important Developments and Sectoral Highlights
Increase in Defence Exports
Defence exports have witnessed exponential growth exceeding Rs 23,622 crore (approx. US$2.8 billion) in FY2025, registering a healthy CAGR of 41%. Private industry participation in exports is growing rapidly, contributing the bulk of new opportunities.
Import Substitution and Technology Advancement
Domestic production now accounts for about 75% of defence procurement, up from 61% in 2017, signifying enhanced self-reliance. Indigenous R&D investments have grown, with government support for critical technologies and establishment of defence manufacturing hubs.
Private Sector Emerging as Growth Driver
Major private companies are increasingly participating in defence manufacturing under the guidance of government policies. The growth of small and medium enterprises in the defence ecosystem alongside large DPSUs is contributing to innovation and manufacturing capacity expansion.
Challenges and Future Outlook
Need for Enhanced Working Capital and Financial Management
While revenues and profitability are rising, efficient working capital management remains a challenge for smaller manufacturers, necessitating improved access to credit and financial services.
Continued Investment in Advanced Technologies
India’s ambitions to become a top-five global defence exporter by 2025 require sustained investment in R&D, advanced manufacturing techniques, and integrated supply chains.
Conclusion: A Bright Future for India’s Defence Industry
Driven by the Make in India initiative, sustained government funding, robust order books, and improving margins, India’s defence sector stands at a pivotal growth juncture. The increasing participation of private players, growing exports, and focus on indigenisation are reshaping India into a major global defence manufacturing hub. This momentum not only strengthens national security but also offers long-term economic and investment opportunities.
Sources: Economic Times, PIB India, Teji Mandi, Drishti IAS, Financial Express, Equitymaster, ICRA, Times of India
