India’s defence capital expenditure is projected to rise sharply to ₹2.8 trillion by FY2030, growing at an 11 percent CAGR, driven by indigenisation, export growth, and modernisation programs.

Kotak Institutional Equities highlights drones, counter-drone systems, and rising domestic procurement as key drivers, while exports are expected to hit ₹500 billion by FY2029.

India’s defence capital expenditure is set to expand significantly, reaching ₹2.8 trillion by FY2030. This growth trajectory is supported by policy measures such as positive indigenisation lists and the Defence Acquisition Procedure 2020, which mandate over 50 percent indigenous content in acquisitions. These reforms are designed to reduce dependence on imports and strengthen sovereign capabilities.

Indian defence exports have grown fifty-fold over the past decade, rising from just ₹700 crore in FY2014 to ₹38,400 crore in FY2026. This surge has been driven by cost-competitive indigenous platforms, proven combat performance during Operation Sindoor, and the easing of export controls.

The United States remains the largest export destination, accounting for nearly half of shipments, while Europe and Armenia are emerging as important new markets. The government’s next milestone is ₹500 billion in exports by FY2029.

Technological advancements are reshaping spending priorities. Drones are fundamentally altering warfare economics, with the global military drone market valued at $30 billion in 2024 and projected to reach $75 billion by 2029. India is expected to spend $25–30 billion on drones and $4–5 billion on counter-drone systems over the next decade. This reflects the growing importance of unmanned systems in modern combat.

Global military spending has surged from $600–700 billion in the 1990s to $2.7 trillion in 2024. According to SIPRI, this figure could rise to $6.6 trillion by 2035. India currently ranks as the fifth-largest military spender globally, with an annual expenditure of $84 billion. Rising military budgets in neighbouring countries underscore the urgency for India to accelerate its own modernisation efforts.

Acceptance of Necessity approvals have surged nearly tenfold between FY2021 and FY2026, implying ₹6.5–7 trillion in new orders during FY2027–29. This pipeline highlights the scale of upcoming procurement and the opportunities for domestic manufacturers.

The share of domestic procurement has already risen from 54 percent in FY2019 to over 70 percent, positioning Indian companies to benefit from geopolitical tensions and expanding export opportunities.

Financially, Indian defence firms are trading at a significant premium compared to global peers. They operate at a forward price-to-earnings multiple of 50X versus 28X globally, reflecting faster projected growth.

Revenue CAGR for Indian firms is estimated at 26 percent, compared to the global average of 11 percent. Between FY2021 and FY2026, domestic manufacturers delivered a 25 percent revenue CAGR, while EBITDA margins expanded by 500 basis points to approximately 25 percent. Adjusted for lower R&D spending, the margin advantage narrows from 800 basis points to around 450 basis points, but remains substantial.

This structural upcycle in defence spending is expected to transform India’s defence-industrial identity. With rising exports, expanding domestic procurement, and technological investments in drones and advanced systems, India is steadily moving from being a major importer to a global exporter and innovator in defence technologies.

ANI