India’s defence sector is entering a new phase of scale, indigenisation and global expansion, with domestic production reaching a record INR 1.8 trillion (INR 1.8 lakh crore) in FY26 -- up 15.6 per cent year-on-year and representing an approximately 18 per cent CAGR since FY21
NEW DELHI — India’s defence sector is entering a new phase of scale, indigenisation and global expansion, with domestic production reaching a record INR 1.8 trillion (INR 1.8 lakh crore) in FY26 -- up 15.6 per cent year-on-year and representing an approximately 18 per cent CAGR since FY21, a report showed on Wednesday.
The momentum is increasingly being supported by a structural shift in government procurement, rising private-sector participation, expanding indigenous design capabilities and a growing pipeline of large defence programmes, said the report from Emkay Global Financial Services.
Defence exports also surged 63 per cent to around INR 380 billion, reinforcing the country’s growing position as a global supplier of defence equipment and systems.
The government has set a target of INR 3 trillion in defence production and Rs 500 billion in defence exports by FY29, pointing to continued expansion across the domestic defence manufacturing ecosystem.
India now exports defence products to over 80 countries, with the US, France and Armenia among the major buyers. Meanwhile, the government’s indigenisation drive is broadening the addressable opportunity for domestic manufacturers.
Five positive indigenisation lists covering 5,012 critical items have been notified, of which 3,025 have already been indigenised. Over 38,000 items have been identified for indigenisation through the Srijan portal, with over 13,900 successfully indigenised.
Out of nearly Rs 1.4 trillion modernisation budget for FY27, 75 per cent has been earmarked for domestic industry. The private sector’s contribution to overall defence production rose to 24 per cent in FY26 from 22 per cent in FY25, reaching around Rs 420 billion.
Nearly 25 per cent of the domestic capital acquisition budget for FY27, or approximately Rs 347 billion, has been earmarked for private industry.
This growing role for private companies is also changing the nature of participation across the defence value chain. Indian companies are increasingly moving beyond the traditional Build-to-Print model towards Build-to-Specification, Build-to-Design and Build-to-Requirements capabilities.
Several private-sector players are also developing Lead System Integrator capabilities, positioning them to participate more deeply in the design, integration and delivery of complex defence platforms.
Defence capital outlay for FY27 stands at approximately INR 1.9 trillion, up 24 per cent year-on-year, supporting a substantial procurement pipeline across the armed forces.
The Indian Air Force is progressing programmes including the Multi-Role Fighter Aircraft, LCA Tejas Mk-II, Su-30 MKI upgrades, medium transport aircraft, additional S-400 systems and the Advanced Medium Combat Aircraft.
The Army’s pipeline includes Future Infantry Combat Vehicles, Future Ready Combat Vehicles, K9 Vajra-T systems, QRSAM, Akash-NG, loitering munitions, helicopters and next-generation Pinaka systems.
The Navy is pursuing 'Project 75I', additional Scorpene submarines, next-generation frigates, naval utility helicopters, unmanned underwater vehicles and an indigenous carrier-based fighter.
“With record production already achieved in FY26 and ambitious production and export targets ahead, the sector is increasingly positioned around a longer-term structural growth opportunity rather than a short-term procurement cycle,” the report noted.