Indian defence industry to grow from Rs 1.78 lakh crore in FY26 to Rs 3 lakh crore by FY29, at a CAGR of ~19%: CareEdge Ratings
According to CareEdge Ratings, Indian defence industry is expected to grow from Rs 1.78 lakh crore in FY26 to Rs 3 lakh crore by FY29, at a CAGR of ~19%, while maintaining Profit Before Interest, Lease Rentals, Depreciation and Taxation (PBILDT) margins of 20-22%. This growth is likely to further enhance domestic defence capabilities and strengthen India’s position in the global defence landscape.
India’s defence sector is witnessing sustained growth momentum amid rising geopolitical tensions, changing dynamics of modern warfare, and rapid technological advancements.
The Union Budget for FY27 has allocated Rs 7.85 lakh crore to Ministry of Defence, a ~15% increase over FY26 (BE), underscoring the government’s continued focus on the sector. This enhanced allocation, together with policy measures such as FDI liberalisation (up to 74% under the automatic route), positive indigenisation lists, export promotion initiatives aimed at achieving India’s defence export target, and increased emphasis on R&D, is driving a structural shift 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 notes that India’s defence sector has substantially reduced its dependence on imports through increased domestic manufacturing, reflecting the country’s growing focus on defence indigenisation. Despite this shift, imports remain critical for advanced platforms. Russia continues to be a key supplier, although its share in India’s imports has declined to ~40% during 2021–2025 from ~70% in 2011–15. India is increasingly diversifying procurement towards France and Israel to mitigate single-supplier risk and access advanced technologies.
India remained the world’s second-largest arms importer during 2021–25, accounting for ~8.2% of global imports, driven by security dynamics. While imports declined by ~4% compared to 2016–20, reflecting improved domestic capabilities, ongoing procurement of advanced fighter aircraft, submarines and other high-technology defence systems indicates sustained reliance on foreign suppliers alongside ongoing indigenisation efforts.
India’s Defence Exports: Gaining Strong Global Momentum
CareEdge Ratings highlights that India’s defence exports have witnessed strong momentum, reaching an all-time high of Rs 38,424 crore in FY26, reflecting a 62.66% increase over FY25. The growth was driven by both DPSUs and the private sector, which contributed 54.84% and 45.16% respectively, while the number of defence exporters increased to 145 from 128 in FY25, indicating deeper industry participation. The rise in exports reflects growing global acceptance of Indian defence products, greater integration into international supply chains, and higher defence procurement amid geopolitical conflicts and security uncertainties. India currently exports defence equipment to over 80 countries, with Myanmar, the Philippines and Armenia being the top 3 markets during 2021-25.
Policy support through ease-of-doing-business initiatives, streamlined export procedures, and a strong push towards indigenous manufacturing has further accelerated export growth. Going forward, India aims to scale defence exports to Rs 50,000 crore by FY29 and Rs 2.8 lakh crore by 2047 under the Viksit Bharat vision, reinforcing its ambition to emerge as a significant global defence exporter.
Pulkit Agarwal, Director, CareEdge Ratings notes “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.
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