Defence

This industry exists because a country's ability to defend itself cannot depend entirely on another country's willingness to keep selling it weapons, especially during the exact moments, a conflict or a sudden crisis, when that willingness is most likely to waver. Defence self-reliance is treated as a strategic imperative distinct from ordinary industrial policy, which is why this sector operates under rules, ownership caps and procurement processes unlike almost any other industry on this site.

The second reason is economic: defence manufacturing, done well, builds precision engineering, metallurgy and electronics capability that spills over into civilian industry, aerospace, shipbuilding and advanced electronics chief among them, which is part of why India treats defence manufacturing growth as an industrial policy goal, not purely a security one.

Defence manufacturing exists inside a paradox that shapes almost every decision in the industry: India is simultaneously one of the world's largest buyers of foreign weapons and one of the fastest-growing builders of its own. This industry spans research (DRDO), manufacturing (public sector giants like HAL and a fast-growing private sector) and procurement policy, all shaped by the same underlying goal, reducing reliance on imported weapons without compromising what the armed forces actually need on a given day.

The last decade's numbers are genuinely dramatic by government-programme standards: domestic defence production has grown nearly fourfold, and exports have grown more than fifty-fold from a very low base, even as India remains the world's second-largest arms importer.

When India buys a large weapons system from a foreign supplier, Offset Policy typically requires that supplier to reinvest a share of the contract value back into India, through local manufacturing, technology transfer or sourcing from Indian companies, rather than simply pocketing the full payment and shipping a finished product. This single mechanism is what converts a portion of even India's substantial import bill into domestic industrial capability.

Combined with the Positive Indigenisation List, which closes off the import option entirely for thousands of specific items, and the Strategic Partnership Model, which builds long-term domestic manufacturing partners for the largest platforms, these three mechanisms work together on the same underlying goal from different angles: shrinking the list of things India has to buy from abroad, one contract, one item and one platform category at a time.

Defence trade runs in both directions at meaningful scale, and both directions are growing. India's defence exports reached a record Rs 38,424 crore in FY2025-26, a 62.7% jump over the prior year, reaching customers in more than 80 countries, with defence public sector undertakings contributing 54.84% of that total and the private sector 45.16%, a genuinely balanced split between the two.

On the import side, India remains the world's second-largest arms importer, accounting for roughly 8.2% of global arms imports in 2021-25. What has changed is the supplier mix: Russia's share of India's arms imports fell sharply, from 70% in 2011-15 to 51% in 2016-20 to 40% in 2021-25, while France rose to become India's second-largest supplier at 29%, and Israel climbed to 15%, reflecting a deliberate diversification away from reliance on any single foreign supplier.

Defence PSUs and private manufacturers earn primarily through large, long-cycle government contracts, won through a mix of competitive tendering, licensed production agreements and Strategic Partnership Model selections, with revenue recognised over multi-year production and delivery schedules rather than single transactions.

A growing share of revenue increasingly comes from exports, where Indian manufacturers, DPSUs and private companies alike, compete on price and reliability against established global defence exporters, a genuinely different, more commercially competitive earning model than the largely captive domestic procurement business.

Developing a new indigenous platform, a fighter jet, a missile system, a warship class, requires enormous upfront research and development investment with a genuine risk the programme could run years behind schedule or fail to meet performance requirements entirely, a risk DRDO's history illustrates clearly.

Once a platform is proven and enters production, however, costs become far more predictable, driven by materials, labour and component costs across a multi-year production run with contracted, largely guaranteed government demand, a very different risk profile from the uncertain R&D phase that preceded it.

Over the next five years, expect continued growth toward the government's Rs 3 lakh crore production and Rs 50,000 crore export targets by 2029, deeper private sector participation through the Strategic Partnership Model, and further expansion of the Positive Indigenisation List squeezing remaining import categories.

The real test is whether India can convert its fast export growth, still starting from a very low base, into a durable, globally competitive position, rather than a temporary beneficiary of buyers looking for alternatives to Russian equipment specifically.