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India’s defense market is undergoing a period of rapid expansion, largely driven by the heightened security concerns following recent military tensions with China and a renewed thrust on indigenous production under the “Make in India” initiative. This transformation reflects India’s growing need for self-reliance in defense capabilities, technological advancement, and the development of a robust domestic defense industry. In this article, we’ll explore the key factors fueling the growth of India’s defense market and the opportunities it presents for both domestic and international players.
The Indian defense market is poised for significant growth, with its size projected at USD 17.40 billion in 2024, and forecasted to reach USD 23.05 billion by 2029. This represents a compound annual growth rate (CAGR) of 5.79% from 2024 to 2029. India’s defense sector has seen a consistent push toward modernization and self-reliance, driven by government policies and initiatives aimed at reducing dependence on foreign suppliers and bolstering domestic defense production capabilities.
Key Growth Drivers
The potential market opportunity for Indian defence companies is projected to grow at a robust 14 per cent compound annual growth rate (CAGR) from FY2024 to FY2030, according to a recent sectoral report by Jefferies. This anticipated growth is largely driven by the Indian government’s strategic focus on indigenisation and export expansion, both of which are reshaping the landscape for domestic defence manufacturers.
Jefferies attributes the surge in domestic order flow and revenue growth to two primary catalysts: intensifying global geopolitical tensions and India’s increasing emphasis on self-reliance in defence production. The report highlights that India’s proactive diplomacy, aimed at strengthening bilateral defence ties to boost exports, adds further momentum to this growth—calling it the “icing on the cake.”
Geopolitical Tensions:
The ongoing border disputes with China and Pakistan have heightened India’s security concerns, leading to increased investments in defense capabilities.
The military conflict between India and China, especially the skirmishes in the Galwan Valley in 2020, marked a significant turning point in India’s defense strategy. The tensions along the Line of Actual Control (LAC) highlighted critical gaps in India’s military infrastructure and capabilities, particularly in border security, surveillance, and advanced weaponry. These events prompted the Indian government to re-evaluate its defense posture and fast-track defense modernization efforts.
Since then, India has significantly increased its defense budget, with a focus on strengthening border security, modernizing military equipment, and enhancing the preparedness of its armed forces. Investments have surged into high-altitude warfare systems, enhanced surveillance technologies, and long-range strike capabilities. This renewed focus on defense readiness has accelerated both procurement and domestic production in key sectors such as aerospace, naval systems, and missile technology.
Rising Defense Budget:
India’s security threats range from ‘two-and-a-half’ front war comprising of coordinated aggression by Pakistan in the West, China in the North and internal insurgencies in J&K, North East and Maoist/Naxalite violence, growing Chinese Navy activities in the Indian Ocean and COVID-19 pandemic. India shares a 3,323km land border with Pakistan, and an even longer 3,488km border with the People’s Republic of China (PRC), and has territorial disputes with both countries over the ownership of the Northern State of Kashmir and the North Eastern State of Arunachal Pradesh, respectively.
India’s strategic geopolitical positioning, with ongoing border conflicts with neighboring nations like China and Pakistan, creates a continuous demand for military equipment, such as large-caliber munitions and advanced defense systems. For instance, the military standoff at the Line of Actual Control (LAC) with China and the longstanding border dispute with Pakistan have further amplified India’s defense needs.
These factors have played a crucial role in spurring growth in Indian base defense expenditure (excluding pensions) over the historic period, which increased from US$39.3 billion in 2016 to US$47.3 billion in 2020, reflecting a CAGR of 4.80% over the historic period. The need to secure strategic interests, against the backdrop of ever increasing Chinese presence in the Indian Ocean region, continues to fuel the growth of India’s defense expenditure and the Indian defense market.
India’s defence expenditure is expected to double by FY2030, which could positively influence the stock performance of listed defence companies. The sector is estimated to represent a market opportunity worth USD 90 to 100 billion over the next five to six years, with the overall defence industry projected to grow at a CAGR of 13 per cent during this period.
Despite being among the top three global defence spenders, India’s defence budget in 2022 was significantly lower than that of its peers—approximately 10 per cent of the U.S. defence spending and 27 per cent of China’s. Notably, India remains the second-largest importer of defence equipment, accounting for 9 per cent of global arms imports.
Capital defence spending—outlays for big-ticket military hardware—is anticipated to continue growing at a steady pace of 7–8 per cent annually, consistent with the growth rate observed over the past decade. This sustained investment in high-value defence assets underpins long-term confidence in the sector.
India’s defense budget has steadily increased over the years, providing ample resources for modernization and procurement. The Indian government has set aside USD 19.64 billion for procuring new weapons and platforms for 2023-2024 alone. Furthermore, with an allocation of USD 2.79 billion for defense-related research and development, India aims to strengthen its indigenous manufacturing capabilities under the “Atmanirbhar Bharat” (Self-Reliant India) initiative. This commitment to self-reliance not only reduces import dependency but also fosters innovation in defense technology.
On the export front, Jefferies projects that India’s defence export opportunity will rise at an impressive CAGR of 18 per cent between FY2024 and FY2030. India’s defence exports have already increased 14-fold from FY2017 to FY2024, reaching USD 2.6 billion. The report expects this figure to climb further to USD 7 billion by FY2030, aligning well with the government’s goal of achieving USD 6 billion in exports by FY2029.
Key export markets for Indian defence firms include Italy, Egypt, the UAE, Bhutan, Ethiopia, and Saudi Arabia. The Middle East, which accounts for 33 per cent of global arms imports (valued at USD 11 billion), offers a particularly lucrative opportunity. Qatar and Saudi Arabia alone constitute 52 per cent of Middle East arms imports, positioning them as highly strategic partners for Indian exporters.
Make in India: A New Era of Indigenous Defense Manufacturing
India’s defense sector is undergoing a paradigm shift, driven by the government’s aggressive push to promote domestic manufacturing and reduce dependence on foreign arms imports. Launched in 2014, the ‘Make in India’ initiative has gained significant traction in the defense industry, signaling a new era of self-reliance and industrial capability development.
Recognizing the strategic and economic imperatives of building a resilient defense manufacturing ecosystem, the Indian government has introduced a series of forward-looking policy reforms. One of the most impactful has been the revisions to the Defense Procurement Policy (DPP), which now favors domestic companies through mandated local content requirements in contracts and prioritization of indigenously designed, developed, and manufactured (IDDM) products. These measures are aimed at ensuring that Indian firms are not just assembly hubs but creators of core technologies.
Another major policy thrust has been the liberalization of Foreign Direct Investment (FDI) in the defense sector. By allowing up to 74% FDI through the automatic route, the government has opened the doors for global defense companies to form joint ventures, establish manufacturing bases, and transfer advanced technologies to Indian soil. This has helped accelerate the localization of production while deepening international collaborations.
Additionally, Defence Offset Obligations require foreign defense suppliers to invest a share of their contract value back into India’s defense industry. This strategic policy is designed to nurture domestic capability, facilitate technology transfer, and create long-term supply chain partnerships with Indian companies.
These reforms have led to a growing participation of Indian defense manufacturers—both public and private—in the creation of advanced defense platforms. Public sector giants like Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL), and Larsen & Toubro (L&T) are increasingly collaborating with global firms to produce fighter aircraft, drones, naval systems, and sophisticated artillery. These partnerships are not only enhancing local production capacity but are also helping Indian firms gain access to cutting-edge technologies.
Importantly, the rise of startups and small-to-medium enterprises (SMEs) in niche areas such as robotics, artificial intelligence, cybersecurity, and unmanned systems is injecting innovation and agility into the defense ecosystem. Supported by initiatives like iDEX (Innovations for Defence Excellence), these firms are helping to create a diversified and forward-looking industrial base that can respond to the future needs of the armed forces.
The convergence of policy support, global partnerships, and indigenous innovation under the ‘Make in India’ banner is transforming the country into a credible defense manufacturing hub. As India progresses toward its goal of strategic autonomy, this initiative will remain central to building a robust and competitive defense industrial base capable of meeting both domestic and global demands.
Modernization of Armed Forces:
The Indian military is undergoing a significant modernization process, requiring substantial investments in new equipment, weapons, and technology.
Air Force Segment: Leading the Modernization Effort
India’s Air Force segment is expected to hold the largest share of the defense market during the forecast period. The modernization of its aircraft fleet remains a top priority, with several significant projects planned or underway. India is working on indigenous aircraft such as the HAL Tejas LCA Mk1 and the upcoming AMCA (Advanced Medium Combat Aircraft) project, which aims for its first flight by 2025-2026. Other critical acquisitions include the Dassault Rafale, the HAL Dhruv ALH, and the ongoing development of the Tejas Mk 2, with series production expected to commence in 2026.
The Indian Air Force is also investing heavily in air defense systems, with programs such as the indigenous Akash SAM, the Russian-made S-400 air defense systems, and the IAI MRSAM. These initiatives will not only strengthen India’s air capabilities but also drive growth in the defense sector.
Naval Segment: Expanding Fleet and Capabilities
India’s naval segment is set to exhibit robust growth, driven by ongoing efforts to expand and modernize its naval fleet. The Indian Navy, which currently operates 181 surface vessels and 18 submarines, is focused on both conventional shipbuilding and the adoption of advanced unmanned technologies to enhance maritime security. India’s “Make in India” initiative has propelled the construction of 67 ships under various stages of development, including indigenous frigates, aircraft carriers, and patrol vessels.
In addition, the Indian Navy commissioned its first survey vessel in 2024, INS Sandhayak, which will play a crucial role in hydrographic surveys and maritime navigation. The naval segment’s growth is further bolstered by India’s focus on increasing its naval presence in key maritime regions to safeguard its interests.
Strategic Collaborations and Joint Ventures
The push for indigenous defense manufacturing has led to increased collaboration between Indian companies and global defense giants. Major international players such as Lockheed Martin, Boeing, Airbus, and Dassault Aviation have partnered with Indian firms to establish production lines for critical defense systems and technologies. This collaboration serves a dual purpose: bolstering India’s domestic manufacturing base while providing international firms with access to one of the world’s largest and fastest-growing defense markets.
India’s partnership with Russia for the joint production of the BrahMos missile system is a prime example of successful collaboration. Similarly, India’s deal with France for the procurement and assembly of the Rafale fighter jets has showcased the potential for technology transfer and co-development.
International collaborations are a key aspect of India’s defense market. Strategic partnerships between foreign and Indian manufacturers have strengthened India’s defense production capabilities. Notable examples include Boeing’s partnership with HAL and Mahindra for the production of F/A-18 Super Hornet fighters, the collaboration between Ashok Leyland and Elbit Systems for military vehicles, and the India-Russia partnership for the production of AK-203 rifles.
India’s reliance on technology transfers and joint ventures will play a critical role in expanding its defense manufacturing base, while also providing local players with the expertise needed to innovate in-house. These partnerships have been crucial to India’s efforts to build a self-reliant defense industry and enhance its global competitiveness in defense technology.
Emerging Opportunities in India’s Defense Sector
India’s defense market is entering a transformative phase, fueled by the country’s strategic ambitions and a growing emphasis on self-reliance. As national security threats evolve and technologies advance rapidly, India is focusing on a number of high-potential areas to strengthen its defense capabilities and reduce dependence on foreign imports.
Aerospace and Fighter Aircraft
One of the flagship areas is aerospace, particularly indigenous fighter aircraft development. India’s commitment to self-sufficiency is exemplified by the HAL Tejas, a domestically developed light combat aircraft that symbolizes the nation’s aerospace aspirations. At the same time, India continues to procure advanced platforms such as the Rafale to fulfill immediate operational requirements and maintain a competitive edge. The balance between domestic innovation and strategic foreign procurement reflects a dual-track approach to building a modern, capable air force.
Unmanned Aerial Vehicles (UAVs) and Drones
The use of UAVs and drones has become increasingly pivotal in modern warfare, particularly in surveillance, reconnaissance, and real-time intelligence gathering. India recognizes this shift and is investing in the indigenous design and production of UAVs to reduce reliance on imports and strengthen its domestic capabilities. As border management and asymmetric threats grow more complex, drone technologies are becoming indispensable assets in India’s defense toolkit.
Naval Systems and Submarines
With a vast coastline and significant maritime interests in the Indian Ocean Region, India continues to prioritize the expansion and modernization of its naval forces. Investments are flowing into advanced naval platforms, with an increasing focus on indigenous submarine programs, including nuclear-powered vessels. Strengthening shipbuilding capabilities and enhancing underwater warfare technology are central to India’s strategy to secure its maritime domain and project power in regional waters.
Missile Systems
India’s missile development programs reflect its technological maturity and strategic foresight. The BrahMos supersonic cruise missile stands out as a globally recognized symbol of Indian defense innovation. Moreover, India is actively investing in hypersonic missile technologies, aiming to join a select group of nations with next-generation strike capabilities. These advancements bolster India’s deterrence posture while enhancing its offensive readiness in a highly contested security environment.
Cybersecurity and Electronic Warfare
As the nature of warfare extends into cyberspace, India is rapidly enhancing its cyber defense architecture. The rise in sophisticated cyber threats has made cybersecurity a core focus for national defense planning. Simultaneously, investments in electronic warfare systems are becoming increasingly critical. These systems not only help in defending military networks and communications but also provide capabilities to disrupt adversarial electronic infrastructures during conflict.
Emerging Technologies: AI, Robotics, and Quantum Computing
Emerging technologies such as Artificial Intelligence (AI), robotics, and quantum computing are reshaping modern warfare and defense operations. AI is being leveraged to enable autonomous systems, enhance situational awareness, and support data-driven decision-making. Robotics is revolutionizing battlefield logistics, reconnaissance missions, and explosive ordnance disposal, improving both efficiency and personnel safety. Meanwhile, quantum computing holds the potential to revolutionize secure communications, cryptography, and defense simulations, offering India a long-term strategic advantage in the digital age.
Challenges to Indigenous Capabilities
India’s ambitious push toward defense self-reliance marks a critical shift in national strategy, yet several structural and technological hurdles continue to impede progress. A major challenge lies in the country’s ongoing dependence on foreign suppliers for vital defense components such as avionics, advanced radar systems, propulsion technologies, and missile guidance mechanisms. This reliance exposes India’s defense supply chain to vulnerabilities stemming from geopolitical tensions, diplomatic shifts, or global trade disruptions—any of which could delay procurement schedules and compromise military readiness.
Technology Gaps:
While India has made commendable advancements in areas such as missile technology and light combat aircraft, critical technology gaps still exist in high-end segments like next-generation sensors, stealth systems, engine technology, and advanced electronic warfare. Bridging these gaps will require a multi-pronged strategy that includes fostering domestic innovation, encouraging joint ventures with global defense firms, and leveraging technology transfer agreements through government-to-government or industrial partnerships.
Supply Chain Resilience:
India’s defense supply chain needs to evolve into a more resilient and self-sustaining ecosystem. The current dependence on external sources for high-value subsystems makes the production process susceptible to global supply shocks. Building a robust indigenous manufacturing base, supported by tiered suppliers and agile logistics, is essential to ensuring operational continuity and strategic autonomy, especially in crisis scenarios.
Research and Development (R&D):
Sustained investment in defense R&D remains crucial to India’s long-term capability building. While institutions like DRDO have made progress, overall defense R&D spending remains relatively modest compared to global leaders. Increasing funding, enhancing collaboration between academia and industry, and incentivizing private-sector participation in high-tech defense innovation will be instrumental in accelerating the development of cutting-edge systems.
Key Players and Contributions
India’s aerospace and defense sector is undergoing a remarkable transformation, marked by the convergence of indigenous innovation and international collaboration. As the nation advances its goal of self-reliance and modernization of the armed forces, both domestic and global defense companies play pivotal roles in driving growth, technology adoption, and capability enhancement.
Domestic Leaders
Among India’s foremost contributors is Hindustan Aeronautics Limited (HAL), a cornerstone of the country’s aerospace ambitions. HAL is actively engaged in the design, development, and production of aircraft, helicopters, and aero-engines. Its flagship project, the indigenous Tejas fighter jet, exemplifies India’s commitment to reducing dependence on imported platforms.
Bharat Electronics Limited (BEL) is another key player, specializing in advanced defense electronics. BEL’s expertise spans radars, communication systems, electro-optics, and electronic warfare, making it indispensable to India’s defense communication and surveillance infrastructure.
The Defense Research and Development Organization (DRDO) serves as the innovation engine of India’s defense sector. It leads cutting-edge R&D efforts across a wide range of technologies, including missile systems, aircraft, armored vehicles, and naval platforms. DRDO’s partnerships with public and private sectors underpin many of India’s strategic defense programs.
Tata Advanced Systems Limited (TASL), a subsidiary of the Tata Group, has emerged as a major contributor to defense manufacturing, particularly in aerospace and land systems. Notably, TASL is involved in the production of the C-295 military transport aircraft, underlining the growing role of the private sector in domestic capability building.
Larsen & Toubro (L&T) has carved out a strong niche in defense shipbuilding and engineering. Its contributions include warships, submarines, combat vehicles, and radar systems, especially for the Indian Navy. L&T’s shipyards are instrumental in supporting India’s maritime security expansion.
Global Collaborators
International defense giants are also vital to India’s defense ecosystem. Lockheed Martin has been a long-standing partner, offering fighter jets like the F-21—customized for the Indian Air Force—and contributing to missile and surveillance systems.
Boeing plays a significant role by supplying military aircraft such as the Apache attack helicopters and the P-8I maritime surveillance aircraft, both of which have become integral to India’s strategic operations.
Airbus strengthens India’s air mobility through its involvement in both commercial and defense aircraft programs. It has collaborated extensively with Indian firms on transport aircraft production and MRO (maintenance, repair, and overhaul) capabilities.
Raytheon Technologies, formed from the merger of Raytheon and United Technologies, offers India cutting-edge systems in areas like avionics, missile defense, and electronic warfare—critical to modernizing Indian defense platforms.
BAE Systems, a UK-based defense major, supplies India with a broad range of solutions including armored vehicles, naval systems, and defense electronics. Its partnerships enhance India’s defense industrial base and offer scope for technology transfer.
Strategic Focus Areas
India’s defense modernization spans several priority areas. In aerospace, domestic aircraft development and global co-production projects are expanding capabilities in manufacturing, maintenance, and fleet readiness. In defense electronics, advancements in radar, communications, and electronic warfare are improving command and control across all military branches.
Land systems, such as tanks, artillery, and armored vehicles, are being locally produced to meet operational requirements and reduce import dependency. Naval systems are rapidly evolving with a focus on indigenous shipbuilding, nuclear submarines, and advanced naval weaponry to assert dominance in the Indian Ocean.
India’s robust missile and rocket programs—led by indigenous efforts like the BrahMos supersonic missile—are being further strengthened with investments in emerging technologies such as hypersonic systems. Unmanned Aerial Vehicles (UAVs) are also a major focus, with a push toward self-reliant development for surveillance, reconnaissance, and combat missions.
India’s aerospace and defense market is being reshaped by the dynamic interplay between homegrown innovation and international expertise. As domestic champions like HAL, BEL, and DRDO lead indigenous development, collaborations with global leaders such as Lockheed Martin, Airbus, and Boeing are accelerating technology infusion and capability enhancement. With a clear long-term vision of self-reliance, modernization, and global export leadership, India is steadily positioning itself as a formidable force in the global defense industry.
Market Outlook and Future Trends
The Indian defense market is expected to experience steady growth across all segments, driven by modernization programs, increased defense budgets, and the government’s push for indigenous production. The ongoing expansion of naval capabilities, alongside advancements in air and ground defense systems, will position India as a key player in the global defense landscape.
However, to fully realize its potential, India will need to address its technological gaps and continue fostering domestic innovation in critical areas such as missile systems, aircraft avionics, and naval defense technologies. The “Make in India” initiative and growing international partnerships will remain pivotal in shaping the future of India’s defense industry.
Conclusion
India’s defense market is on the verge of transformation, with significant investments in modernization and a strong push toward self-reliance. While challenges remain in the form of limited indigenous capabilities, strategic partnerships and increased government support are expected to drive the sector’s growth over the next decade. With a comprehensive strategy focusing on modernization, procurement, and self-reliance, India is set to emerge as a major defense market on the global stage.
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