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India’s defence sector is undergoing a structural transformation—from being predominantly import-dependent to emerging as a credible domestic manufacturing and export ecosystem. We believe this transition is supported by a powerful combination of Make in India, rising defence capital expenditure, indigenisation, private-sector participation and improving access to global markets.
The numbers increasingly validate this shift. India’s defence production reached a record ₹1.78 lakh crore in FY26, while defence exports rose to an all-time high of ₹38,424 crore, compared with only ₹686 crore in FY14. Indian defence products are now exported to 80+ countries, and the Government is targeting ₹3 lakh crore of annual defence production and ₹50,000 crore of exports by 2029.
The domestic opportunity continues to deepen. The FY27 defence budget stands at approximately ₹7.85 lakh crore, including capital expenditure of about ₹2.19 lakh crore. More importantly, procurement policy is increasingly directing this spending toward indigenous manufacturers.
The latest development reinforces this direction: the Defence Acquisition Council has approved proposals worth approximately ₹1.10 lakh crore, with around 98% proposed to be sourced from Indian industry. This creates opportunities not only for large defence platforms but across the broader ecosystem- electronics, radars, propulsion, precision systems, components and specialised engineering.
The ecosystem itself is broadening. Around 17,000 MSMEs now participate in defence manufacturing, while the private sector accounted for approximately 24% of FY26 defence production and 45% of defence exports. This suggests that value creation is gradually spreading beyond traditional public-sector manufacturers into specialised private-sector suppliers and technology companies.
We believe the most interesting evolution is India’s transition from “Make in India for India” toward “Make in India for the World.”
Recent simplification of the Defence Export SOP and Open General Export Licence framework is intended to reduce procedural hurdles and enable Indian manufacturers-particularly MSMEs- to respond faster to international opportunities.
At the same time, India’s expanding network of international trade and strategic partnerships can potentially improve market access, supply-chain integration and co-development opportunities. The India-EU Security and Defence Partnership, for instance, provides for an India–EU Defence Industry Forum focused on joint development and resilient supply chains.
Recent international collaborations also point toward a shift from simple buyer-seller relationships to technology partnerships, co-development and manufacturing in India for domestic as well as overseas markets.
As fund managers, we view defence not merely as a short-term government-capex theme but as a multi-year manufacturing opportunity.
The opportunity, however, requires selectivity. Defence businesses can have long execution cycles, customer concentration, working-capital requirements and valuations that sometimes discount several years of growth in advance.
The larger structural story is compelling: India is moving from importing defence equipment, to manufacturing it domestically, to increasingly designing and exporting it globally. If this transition continues, defence could emerge as one of the important pillars of India’s manufacturing ambitions over the coming decade.
— CIO Desk
Shaan Patel Asset Management
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