Not just local manufacturing, defence exports too have surged. Besides increased allocation, the centre is also expected to announce a PLI for defence and space research

In the last few years, especially in the second five-year term of the Modi government, the defence manufacturing sector has seen a paradigm shift as the administration has focussed on cutting down imports.

Under its ambitious Atmanirbhar Bharat scheme, the government has banned imports of several items, including crucial parts used in defence equipment. Which means they are being manufactured in India now.

The impact is visible. Imports, which used to comprise 46 percent of the overall defence expenditure have dropped to 36 percent in the four years from 2018-19 to 2021-22.

Domestic capital procurement stood at 64 percent of the defence services’ Capital Acquisition Budget in 2021-22. This was enhanced to 68 percent in FY23 (Rs 84,000 crore of 1.24 lakh crore).

The biggest beneficiaries of this Make in India thrust have been defence-related companies who are already experienced in manufacturing defence equipment. Their share prices have zoomed, and along with, shareholder wealth.

The shares of Bharat Dynamics, which makes torpedoes, missiles and launchers, among others, has zoomed 90 percent since last year’s budget. Hindustan Aeronautics, which makes the Tejas fighter jets, and more, is up 74 percent.

Bharat Electronics, which makes navigation and communication systems, is up 46 percent in this period. However, Paras Defence and Space Technologies, which has a portfolio similar to Bharat Electronics, is down 20 percent.

The main driver for the rally in these stocks has been increased government spending on local manufacturing, given the fact that defence spending has increased every year. The trend is likely to continue, say analysts.

“We expect higher capex in Defence,” said Axis Securities in its report. The share of defence in the budgetary pie stood at 13.31 percent of Rs 5.25 lakh crore. A large part of this was expected to go to domestic defence companies.

In 2020-2021, in keeping with the Atamanirbhar Bharat scheme, 74 percent of the Army’s contracts were awarded to Indian vendors, which included government and private companies. Data for FY22 and FY23 is not available yet.

Girish Achhipalia and Amit Bhinde, analysts at Morgan Stanley, said they expected higher allocation for local manufacturing in the budget, with an eye on the private sector.

The government has set a target of Rs 1.75 lakh crore worth of defence production by 2025.

Thus, more companies are being awarded licences to make defence products, though most of them are un-listed. Till October 2022, a total of 595 licences had been issued to 366 companies.

Ashwin Patil, Senior Research Analyst at LKP Securities, said the government was expected to announce PLI schemes for the defence and space research sectors.


Not just local manufacturing, defence exports too have surged, albeit on a very low base. Companies like Hindustan Aeronautics have been beneficiaries of this emerging trend.

Defence exports grew 334 percent in the last five years, and India now exports to over 75 countries. In value terms, defence exports have crossed Rs 13,000 crore. The government plans to increase this to Rs 35,000 crore by 2025. An announcement in this regard is also expected.