India's defence industry is poised for a substantial growth phase, driven by ambitious indigenisation efforts and increased private-sector involvement. According to a Jefferies report, domestic defence capital spending is forecast to rise at a compound annual growth rate (CAGR) of 16% through FY30, creating an opportunity valued at over $60 billion, or approximately ₹5.67 lakh crore, within the next four years.
Private Sector's Growing Influence
The role of private defence companies is rapidly expanding. Their share among key listed defence firms jumped from 9% in FY23 to 16% in FY26, with projections indicating a further rise to around 17.5% in FY27 and 17.6% by FY28-29. This shift is a direct result of the government's strategic initiatives to reduce reliance on imports and foster domestic manufacturing capabilities across various defence platforms, systems, and components.
A significant push for indigenisation has led to 'positive indigenisation lists' covering more than 500 platforms and systems, alongside over 5,000 sub-systems and line-replaceable units. Furthermore, 75% of the defence capital procurement budget has been specifically allocated for domestic sourcing, underscoring the commitment to local production.
Reforms and Export Opportunities
Upcoming procurement reforms, such as the anticipated Defence Acquisition Procedure (DAP) 2026, are expected to further streamline processes, shorten procurement timelines, and promote competitive bidding. Jefferies notes a gradual shift from nomination-based orders towards a more competitive procurement system. The draft DAP 2026 also proposes a Strategic Partnership Model, designed to cultivate indigenous private capabilities, which could lead to improved visibility and stronger margins for domestic suppliers.
Beyond domestic procurement, defence exports are emerging as a vital growth driver. Exports surged by 63% year-on-year to ₹38,400 crore in FY26, surpassing the government's ₹30,000 crore target. Projections suggest this growth will continue, with exports potentially reaching ₹58,400 crore by FY30. The operational validation of Indian-made defence systems, as seen in exercises like Operation Sindoor, is expected to enhance their credibility in international markets.
Building a Domestic Supply Chain
Since 2014-15, India's indigenisation drive has systematically worked to transform the defence industrial landscape, moving away from import dependence towards a robust domestic supply chain. This structural change is expected to deepen local manufacturing and supply chains, leading to greater value retention within India and potentially boosting margins for domestic manufacturers. The combined effect of rising domestic capital spending, an expanding addressable market, increased private-sector participation, and growing exports signals a significant, long-term opportunity for India's defence manufacturing industry.