India's defence sector is undergoing a profound transformation, positioning itself to achieve an ambitious target of ₹3 trillion in annual defence production by 2029. This remarkable growth trajectory reflects a strategic pivot from being primarily an arms importer to developing a robust domestic manufacturing ecosystem with significant export potential.

The government's unwavering commitment to self-reliance, coupled with record domestic orders, increasing private sector participation, and targeted policy reforms, is creating a fertile environment for sustainable growth and innovation in the defence industry.

Current Defence Production Status And Growth Trajectory

India has achieved significant milestones in its defence production capabilities in recent years. According to the latest data, India recorded its highest-ever annual domestic defence production in 2023-24, reaching ₹1.3 lakh crore (₹1.3 trillion), representing a substantial 16.7% growth over the previous fiscal year. This remarkable achievement underscores the increasing capacity and capability of India's defence manufacturing sector. Defence Minister Rajnath Singh has highlighted that India's defence production has crossed the INR 1 Trillion ($12bn) mark, demonstrating the country's growing prowess in this strategic sector.

The growth trajectory over the past five years has been particularly impressive, with defence production value increasing steadily by over 60% since 2019-20. This sustained growth reflects the effectiveness of government policies aimed at boosting domestic manufacturing and reducing dependence on imports. The 'Make in India' program has been crossing new milestones year after year under Prime Minister Modi's leadership, with an unwavering resolve to develop the country as a leading global defence manufacturing hub.

Of the total value of production in 2023-24, 79% was contributed by defence Public Sector Undertakings (PSUs) and other PSUs manufacturing defence items, while around 21% came from the private sector. This distribution highlights the significant role of state-owned enterprises while also indicating the growing importance of private sector participation in India's defence manufacturing ecosystem.

Strategic Vision And Targets For 2029

India's Defence Minister Rajnath Singh has announced an ambitious projection for the country's annual defence production to reach ₹3,00,000 Crores ($36 billion) within the next four to five years. This target represents a nearly threefold increase from current production levels and signals the government's confidence in the sector's growth potential. Complementing this production target is an equally impressive export goal, with the country's exports of military hardware expected to reach ₹50,000 Crores ($6 billion) in the same time-frame.

This strategic vision encompasses not just quantitative growth but also qualitative enhancements in manufacturing capabilities. Plans are underway to domestically manufacture high-end systems, including aero-engines and gas turbines, which have traditionally been import-dependent. These initiatives align with India's broader goal of strategic autonomy in defence matters and elevation of its position in the global defence manufacturing hierarchy.

The transformation from being primarily an arms importer to becoming a significant exporter represents a paradigm shift in India's defence posture. As Defence Minister Singh noted, "Earlier, India was known to be an arms importer. But today, under the leadership of the prime minister, we have come out of our comfort zone and found a place in the list of top-25 arms exporter nations". This evolution reflects India's growing technological capabilities and the increasing global competitiveness of its defence products.

Record Domestic Orders Fuelling Growth

The unprecedented volume of domestic defence contracts is serving as a powerful catalyst for the sector's growth. In a landmark development, India's defence acquisition council recently gave initial approval for the purchase of arms and equipment worth more than ₹54,000 Crores ($6.26 billion) to enhance the capabilities of its armed forces. These approvals span across the Army, Navy, and Air Force, targeting critical capability enhancements rather than mere replacements.

The approval includes the purchase of more powerful engines for Russian-origin T-90 battle tanks operated by the Indian Army, additional anti-submarine torpedoes for the Indian Navy, and airborne early warning and control aircraft systems for the Indian Air Force. These acquisitions are strategically aligned with India's broader modernisation objectives and operational requirements across all three service branches.

According to a report by Nirmal Bang Institutional Equities, companies under their coverage face defence opportunities exceeding US$ 70 billion, distributed over 8-10 years, compared to total FY23 sales of just about US$ 7 billion. This substantial order pipeline provides long-term visibility and stability for defence manufacturers, enabling them to invest in capacity expansion and technological upgradation with confidence.

Defence Budget Allocation And Capital Investments

India has established itself as the third largest military spender in the world as of FY23, with its defence budget accounting for 2.2% of the country's total GDP. This significant allocation reflects the strategic importance placed on defence capabilities in India's national security framework. For the fiscal year 2024-25, ₹6,21,000 Crores ($74.8 billion) has been allocated to the defence budget, providing substantial resources for modernisation and capability enhancement.

In the financial year 2023-24, the government granted in-principle approval to capital acquisition projects valued at over ₹4,35,00,000 Crores ($52.4 billion). This massive investment in capital acquisitions demonstrates the government's commitment to addressing capability gaps and enhancing the operational readiness of the armed forces. Looking ahead, the government is projected to spend around ₹13,000 Crores over the next six years by FY30, providing sustained funding for long-term defence projects.

The defence acquisition council has also approved guidelines for making the process of arms acquisition "faster, more effective and efficient". These streamlined procedures aim to reduce procurement timelines and enhance the responsiveness of the acquisition system to the dynamic requirements of the armed forces.

IAF modernisation: A Critical Priority

The Indian Air Force (IAF) modernisation remains a critical priority in India's defence planning, with a comprehensive roadmap unveiled to enhance combat capabilities with private sector support. A recent report by the Empowered Committee for Capability Enhancement of the IAF, submitted to Defence Minister Rajnath Singh, has identified key focus areas and outlined a phased implementation strategy—short, medium, and long-term—to efficiently achieve the IAF's modernisation objectives.

The committee, formed in January, was tasked with evaluating the IAF's pressing shortages in fighter jets, weapon systems, and other critical equipment. The panel was also mandated to recommend solutions, including accelerating indigenous production and selectively inviting foreign collaborations to bridge capability gaps. This balanced approach seeks to address immediate operational requirements while simultaneously building domestic capabilities for long-term self-reliance.

The report underscores the importance of bolstering Atmanirbhar (self-reliance) in the aerospace sector while emphasising that private industry must play a greater role in complementing the efforts of the Defence Research and Development Organisation (DRDO) and defence public sector undertakings. This collaborative approach recognises the complementary strengths of various stakeholders in the defence ecosystem and seeks to leverage them for optimal outcomes.

Policy Reforms Driving Indigenisation

The remarkable growth in India's defence production and exports can be attributed to a series of policy reforms and initiatives implemented over the past decade. According to the Ministry of Defence, "The feat has been achieved due to the policy reforms and initiatives as well as the ease of doing business brought in the last 10 years, with focus on attaining self-reliance. The indigenisation efforts have been pursued aggressively".

These policy reforms encompass various aspects of the defence ecosystem, including procurement procedures, industrial licensing, foreign direct investment norms, and export regulations. The simplification of processes and creation of a favourable business environment have encouraged greater participation from both public and private sector entities in defence manufacturing.

Defence Minister Singh has urged young professionals to create new companies with a defence profile, emphasising that in 20-25 years, they will define "a new dimension of India's image in the global arena". He specifically identified artificial intelligence, quantum computers, smart weapons systems, cyber warfare, and space defence systems as priority areas for such entrepreneurial ventures. This forward-looking approach aims to position India at the forefront of emerging defence technologies and capabilities.

Private Sector: Emerging As A Crucial Partner

While defence PSUs continue to dominate the production landscape, the private sector is emerging as a crucial partner in India's defence manufacturing ecosystem. Of the total value of defence production in 2023-24, around 21% was contributed by the private sector, marking a significant presence in this traditionally state-dominated domain. The Ministry of Defence has noted that "in terms of absolute value, both defence PSUs/PSUs and the private sector have recorded a steady growth in defence production".

The Nirmal Bang report highlights several reasons for optimism about defence companies, including visibility on long-term execution growth supported by a strong order book and a healthy pipeline; timely execution facilitated by localisation, integrated modular construction, and subcontracting; increased government preference for and domain expertise of companies under coverage; cash-rich balance sheets that prevent significant working capital challenges; and in-house research and development investments with suitable technological support.

Within the defence stocks under their coverage, the brokerage firm prefers companies that focus on niche core technologies, indicating the increasing specialisation and technological sophistication of private sector defence manufacturers. This evolving ecosystem of specialised private sector players complements the scale and infrastructure advantages of defence PSUs, creating a more balanced and resilient defence industrial base.

Future Outlook And Strategic Focus Areas

The future outlook for India's defence sector appears robustly positive, with strong growth potential across various segments. According to the Nirmal Bang analysis, defence aerospace accounts for the largest potential, with around $30 billion worth of opportunities, followed by missiles/artillery gun systems at about $22 billion and defence shipbuilding at $16 billion. This diversified opportunity landscape provides multiple growth avenues for defence manufacturers across different domains.

India's defence exports have shown impressive growth, touching a high of ₹21,083 crore in 2023-24, reflecting a growth of 32.5% over the previous fiscal year. This export performance demonstrates the increasing global competitiveness of Indian defence products and the effectiveness of government initiatives to promote defence exports. The target of reaching ₹50,000 Crores ($6 billion) in exports by 2028-29 appears achievable given the current growth trajectory.

The emphasis on developing indigenous capabilities in critical technologies like aero-engines, gas turbines, artificial intelligence, quantum computing, smart weapons systems, cyber warfare, and space defence systems indicates a forward-looking approach that aims to position India at the cutting edge of defence technology. This focus on advanced technologies will be crucial for maintaining operational relevance in an increasingly complex and technology-driven security environment.

Conclusion

India's defence sector is undergoing a transformative journey from import dependence to self-reliance and export competitiveness. The ambitious target of achieving ₹3,00,000 Crores in annual defence production by 2029 represents a clear strategic vision that is being systematically pursued through policy reforms, increased domestic orders, greater private sector participation, and focused investments in critical technologies.

The record-breaking production figures and export growth in recent years provide tangible evidence of the sector's positive trajectory. The comprehensive approach to modernisation, spanning the Army, Navy, and Air Force, demonstrates a holistic vision for enhancing India's defence capabilities across all domains. As the sector continues to evolve, the increasing integration of private industry with defence PSUs and research organisations is creating a more dynamic and innovative ecosystem capable of addressing complex defence challenges.

With sustained government support, continued policy reforms, and strategic investments in critical technologies, India's defence sector is well-positioned to achieve its ambitious targets and emerge as a globally competitive defence manufacturing hub with significant export potential. This transformation not only enhances India's strategic autonomy but also contributes to its economic growth, technological advancement, and global stature in the defence domain.

IDN