Mumbai, August 5, 2026: The Indian defence industry is projected to grow from Rs 1.78 lakh crore in FY26 to Rs 3 lakh crore by FY29, registering a compound annual growth rate (CAGR) of approximately 19%, according to CareEdge Ratings. The sector is expected to maintain Profit Before Interest, Lease Rentals, Depreciation and Taxation (PBILDT) margins between 20% and 22% during this period.
This anticipated expansion is attributed to sustained growth momentum driven by geopolitical tensions, evolving warfare dynamics, and rapid technological advancements. The growth is expected to further enhance domestic defence capabilities and strengthen India’s global standing in the defence sector.
Government allocation and policy measures
The Union Budget for FY27 has allocated Rs 7.85 lakh crore to the Ministry of Defence, marking a 15% increase over the FY26 budget estimate. Policy initiatives such as liberalisation of foreign direct investment (FDI) up to 74% under the automatic route, positive indigenisation lists, export promotion measures, and increased emphasis on research and development are contributing to a structural shift in the sector. These steps aim to reduce import dependence and boost domestic manufacturing and export competitiveness.
Pritesh Rathi, Associate Director at CareEdge Ratings, said the sector is undergoing a structural transformation due to rising indigenisation, higher capital outlay, and increasing private sector participation. He noted that 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.
Import trends and diversification
CareEdge Ratings highlighted that India’s defence sector has reduced its reliance on imports by increasing domestic manufacturing. However, imports remain essential for advanced platforms. Russia remains a key supplier, though its share of India’s imports declined to around 40% during 2021-25 from approximately 70% in 2011-15. India is diversifying its procurement to include France and Israel to mitigate single-supplier risk and access advanced technologies.
India was the world’s second-largest arms importer during 2021-25, accounting for about 8.2% of global imports. While imports fell by roughly 4% compared to 2016-20, ongoing procurement of advanced fighter aircraft, submarines, and other high-technology defence systems indicates continued reliance on foreign suppliers alongside indigenisation efforts.
Defence exports reach record high
India’s defence exports reached an all-time high of Rs 38,424 crore in FY26, a 62.66% increase over FY25, according to CareEdge Ratings. Defence Public Sector Undertakings (DPSUs) contributed 54.84% of exports, while the private sector accounted for 45.16%. The number of defence exporters rose to 145 from 128 in FY25. India now exports defence equipment to over 80 countries, with Myanmar, the Philippines, and Armenia being the top three markets during 2021-25.
Policy support, streamlined export procedures, and a push for indigenous manufacturing have accelerated export growth. 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.
Pulkit Agarwal, Director at CareEdge Ratings, said the sector is well positioned to enhance export competitiveness and support India’s long-term self-reliance objectives, backed by favourable policy initiatives, geopolitical uncertainties, and continued investments in technology and R&D.
DPSUs and sector profitability
CareEdge Ratings’ analysis of old and new DPSUs, as well as other PSUs and joint ventures, which collectively accounted for 85-90% of aggregate defence production in FY26, indicates a steady growth trajectory in total operating income. Profitability remains robust, with PBILDT margins projected at around 22% in FY27. DPSUs are expected to play a critical role in reducing import dependence and supporting export growth, further enhancing India’s position in the global defence landscape.
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